Estonian Competitiveness Report 2016

Key notes from The Estonian Competitiveness Report written by experts from Eesti Pank:

The main trends of 2014 in international price competitiveness continued and deepened in 2015.

• In the past two years the currencies of Estonia’s continental European trading partners that have floating exchange rates have weakened against the euro; this has compensated for a simultaneous rise against the euro in the US dollar and currencies following it.

• The depreciation of the euro against the dollar is generally supportive for competitiveness in the euro area, especially given the share of global trade that is in currencies linked to the dollar. The specific composition of the Estonian export markets means that the depreciation of the euro against the dollar has little impact here as the nominal effective exchange rates have strengthened over all foreign partners combined.

• The deflationary environment of the past two years has meant the change in the nominal effective exchange rate has had greater significance for the real effective exchange rate than the change in relative prices has, except in the case of the real exchange rate based on unit labour costs.

• Analysis of competitiveness at the micro data level and separate treatment of the price-based and non-price components indicate that there were no fundamental changes in competitiveness in 2011-2014; there are no comparative data for 2015 yet.

• The economy is becoming increasingly polarised in competitiveness terms as non-price competitiveness is improving for some groups of export goods while the structural trade deficit is growing for other groups of goods at the same time; in the past two years more groups of goods have moved into structural deficit than have moved out.

• The global market share of Estonian exports declined a little in 2013-2014. One reason for this is the fading of the CIS markets of Russia, Ukraine and Kazakhstan.

• The competitiveness of Estonian manufacturing and services is around the average for countries in Central and Eastern Europe.

• Competitiveness is better for manufacturing, which is more exposed to foreign trade, than for services.

• Competition has become tighter in several branches of manufacturing and services since the crisis of 2009.

• In the absence of perfect competition in the labour market, mark-ups are estimated to be higher, as employers in most sectors share a large part of their short-term profit with their employees. An average of 12-13% of short-term profit is shared with employees in Estonia, which shows that employees have a relatively good negotiating position in the Estonia labour market even given the minor role played by trades unions.

Read the report from here

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