Corporate debt liabilities increased in the second quarter by 2.7% over the year. The growth was driven by an increase in borrowing from abroad. The share of loans taken from abroad and debt issued there increased slightly, and made up 37% of the total corporate debt liabilities by the end of the quarter.
Corporate equity shrank even further in the second quarter. Weaker foreign demand and rising labour costs meant that corporate profits continued to fall, which resulted in equity being 3% smaller than last year. The rise in debt liabilities at the same time led corporate leverage to increase. However, the capital buffers of Estonian companies remain relatively large thanks to the reinvested profits of earlier years and leverage is less than the average in the European Union.
Household financial savings have increased faster than debt liabilities in recent years. Debt liabilities increased by 4.7% over the year, which was a little faster than the growth in nominal GDP, and household debt remains at around 40% of GDP. Cash and deposits held by households increased almost twice as fast as debt liabilities, increasing by around 9% over the year. Debt liabilities are some 24% larger than deposits, but the gap has come down steadily since 2009.
Estonian residents invested more resources abroad in the second quarter than they took from there. In most of the recent quarters, the Estonian economy has been a net lender, as domestic saving has been higher than investment.
Source: Bank of Estonia
Author: Jana Kask, Head of the Financial Stability Department of Eesti Pank
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