The annual growth of the Dwelling Price Index was 2 pct

According to Statistics Estonia, in the 1st quarter of 2016, the Dwelling Price Index changed by -0.1% compared to the 4th quarter of 2015 and by 2% compared to the 1st quarter of 2015.

Compared to the previous quarter, the prices of apartments decreased by 0.2% and the prices of houses remained on the same level.

Compared to the 4th quarter of 2015, the prices of apartments decreased by 1.5% in Tallinn and increased by 1.8% in areas bordering Tallinn with Tartu and Pärnu cities and by 3.2% in the rest of Estonia.

Compared to the 1st quarter of 2015, the prices of apartments have increased by 3.1% and the prices of houses decreased by 0.5%. Compared to the 1st quarter of the previous year, the prices of apartments remained on the same level in Tallinn, but increased by 9.9% in areas bordering Tallinn with Tartu and Pärnu cities, and by 6.8% in the rest of Estonia.

The previous time that the yearly change in the Dwelling Price Index was smaller than 2% was in the 1st quarter of 2010 when it was -5.5%.

The Dwelling Price Index expresses the changes in the transaction square metre prices of dwellings purchased by households. The Dwelling Price Indices have been compiled for apartments and houses (including detached, semi-detached and terraced houses).

In the 1st quarter of 2016, the Owner-Occupied Housing Price Index changed by -1.1% compared to the 4th quarter of 2015 and by -3.5% compared to the 1st quarter of 2015.

The Owner-Occupied Housing Price Index expresses the changes in the prices of the acquisition of dwellings new to the household sector and other goods and services that households purchase in their role as owner-occupiers. The index consists of four parts: the acquisition of dwellings, other services related to the acquisition of dwellings, major repairs and maintenance, and insurance connected with dwellings.

The Owner-Occupied Housing Price Index is published on the base 2010 = 100. The time series starts from the 1st quarter of 2005; major repairs and maintenance are included from the 1st quarter of 2007 and insurance connected with dwellings is included from the 1st quarter of 2012.

Source: Statistics Estonia

Estonian investments in Q1 2016

The financial account of the balance of payments shows that investment in Estonia was 126 million euros larger in the first quarter of 2016 than investment abroad from Estonia. The net inflow of capital was caused by direct investment in non-financial corporations and foreign aid from the European Union to the general government. The Estonian economy was last a net borrower in the first quarter of 2014.

  • The net inflow of direct investment was 127 million euros, most of which came as growth in the intra-group debt liabilities of non-financial companies. The inflow of equity investment was smaller than usual, as the banks paid out dividends in the first quarter.
  • The net outflow of portfolio investment was 517 million euros, and Eesti Pank invested the most in foreign countries, as before. The central bank invested 400 million euros in foreign securities, and other sectors invested 87 million euros. Since 2015, Eesti Pank’s investments in foreign securities have increased by 1.8 billion euros as part of the asset purchase programmes of the European central banks.
  • The net inflow of other investment totalled 563 million euros, of which 114 million euros was money received from the European Union’s Structural Funds. The purchases of securities by Eesti Pank within the asset purchase programme also had a notable impact on the net inflow, as did the settlements transferred by the other sectors to the rest of the world, which reduced the other investment assets of the central bank by 1.2 billion euros1.

The net international investment position2 at the end of the first quarter of 2016 showed that the external liabilities of Estonian residents exceeded their external assets by 8.5 billion euros, or 41% of GDP. As external assets decreased by more than external liabilities did during the first quarter, the negative net investment position increased by 254 million euros. Of this, 151 million euros was transactions with financial assets and liabilities, 39 million euros was price changes, and 64 million euros was from changes in exchange rates (see the International Investment Position).

Statistics for the external debt show that at the end of the first quarter, the debt assets of Estonian residents from non-residents were 1.8 billion euros larger than their debt liabilities3. Debt assets were 0.5 billion euros less than in the previous quarter and stood at 75% of all external assets at the end of the quarter, with a value of 20.8 billion euros, or 101% of GDP. The volume of debt liabilities decreased by 0.2 billion euros over the quarter to stand at 19 billion euros, or 92% of GDP, which is 52% of all external liabilities (seeExternal Debt).

1 The inflow and outflow of capital for the central bank is affected by the activities of other sectors in which payments made or received move through credit institutions as settlements between central banks of the euro area through TARGET accounts. If the balance of Eesti Pank’s account in the TARGET system is reduced by settlements between euro area central banks, it means that money is going from Eesti Pank to the other central banks and the assets of Eesti Pank are equally decreasing. In the opposite case, money flows in and the assets of the central bank increase.

Securities bought within the asset purchase programme increase the portfolio investment assets of the central bank but reduce the other investment assets by the same amount because of the settlements transferred out of Estonia, so net external financing is not affected.

2 The international investment position is a consolidated balance sheet of the external assets and liabilities of all the institutional sectors of a country as at the balance sheet date at market prices.

3 Debt assets and debt liabilities are components of the international investment position that have a repayment obligation. The external debt does not include direct, portfolio or other investment in equity capital, reinvested earnings, financial derivatives, or the gold of the central bank reserves. The external debt does include the debt assets and liabilities between companies in a direct investment relationship.

The debt assets and debt liabilities position


See a better graph on Bank of Estonia website

Estonian prices stop falling

  • The price level was lower in May than a year earlier, but consumer prices have climbed consistently since the start of this year
  • At the start of the year the oil price started its next cyclical rise, helping consumer prices to increase
  • Deflation should end in the second half of the year after two years

Data from Statistics Estonia show prices falling further in May from a year earlier, with goods and services 0.9% cheaper than they were last May. Prices have risen slightly but steadily in monthly terms since the start of this year and in May consumer prices were up 0.1% on April. In the first five months of the year, the price level rose by a total of 1.4%.

Heat and electricity were cheaper in May than a year previously, which helped bring prices down. The oil price began rising on global markets in January, but its previous very low level means it has not yet led to a rise in inflation. Higher oil prices will be seen in the Estonian consumer price index from the third quarter, ending two years of deflation. Prices for food mainly fell in May with the exception of alcohol, which was more expensive because of the rise in excise rates at the start of the year. Part of the fall in food prices was due to seasonal price changes.

Wage growth increased in the first quarter to 8.1% and unemployment was low, and this has supported domestic demand growth. This can be seen in the turnover volume of retail companies, which were up on average 6.7% in the first four months of the year. Despite increasing demand and sales volumes, inflation for consumer goods has remained low. Prices have risen moderately probably because wholesale prices have been favourable, which has compensated for the rise in labour costs. The trade margins of retail companies increased in the first quarter to a record 31%. It should be noted in this that the margins covered only a part of the increased expenses, including the rapid growth in labour costs, as the profits of retail companies fell at the same time.

Service price inflation slowed in May from 2.1% to 1.2%. Rent prices have stopped rising quite so fast, which is in line with the slowing growth in real estate prices. Rents were still up 6.5% over the year in May, and rising rent prices are still the most important factor among services. Higher wage costs have created extra costs for companies providing market-based services, and that is probably why prices have risen for leisure services. Inflation is currently low for transport services, but faster price rises in transport are to be expected as the oil price continues to climb.

Source: Bank of Estonia

Author: Rasmus Kattai, Economist at Eesti Pank

Acceleration of the economic growth was not broad based

Statistics Estonia did not revise the GDP growth of 1Q2016 with its second estimate: it remained 1.7% yoy and flat qoq (swda) in real terms. Despite the fall in prices, GDP growth reached to 3% in nominal terms (2.5% in 2015). 

Despite the acceleration, the real growth was not broad based – it was contributed primarily by net taxes on products and wholesale and retail trade activity. The growth of net taxes on products came from the increase in the receipts of excise taxes due to the raised excise tax rates on alcohol and fuels as of 1st February. Robust growth of wages and purchasing power contributed to the increase in private consumption (5.5% yoy) as well as domestic trade. Together with the expected recovery in consumer prices as of 2H of this year, the growth of real wages will decelerate and this can slow down consumption. The strongest negative impact on the GDP growth came from energy sector: production of electricity has fallen due to the import and use of cheaper electricity from Finland.

Although the drop of exports has slowed to 1% and export of goods remained flat in the 1Q, decrease in the value added of manufacturing sector deepened (70% of its turnover is exported). Decrease in the value added of transport sector has gradually slowed and its negative contribution to the GDP growth has receded. However, while the volumes of land transport have improved, value added created in ports still fell.

The decrease in imports receded in 4Q2015, while in 1Q2016 even more goods were imported to Estonia compared to the same period in last year. Unfortunately, the increased imports have not brought about the recovery of investments (-5.8%). The accelerated growth of import of capital goods and the credit portfolio of non-financial enterprises (8% in 1Q) have not increased investments. Business sector investments have still decreased, government sector investments dropped sharply as well, while the growth of household sector investments in dwellings have accelerated.

Investments have decreased already 7 quarters in a row. Despite of that, real growth of productivity per hours worked has increased during the last two quarters and this has lessened the negative impact of the increased labour costs on the (price) competitiveness of our goods and services.

According to our estimates, import demand from Estonia’s major trade partners will improve this and next year, providing more opportunities for exporting enterprises. We expect that Estonian economy grows 2% this year contributed primarily by the improving exports and investments.

Source: Swedbank

Estonian companies have increased investments

  • Imports of goods increased again after four quarters of decline
  • Imports of services declined because exports of transport and travel services were down
  • The Estonian economy was a net borrower again after two years

The current account deficit in the first quarter was more than twice what it was a year earlier at 2.3% of GDP. With exports still in decline, goods imports increased over the year by 2% after a pause of a year. The foreign trade statistics show that it is imports of capital goods that have started to increase, which indicates increased investment activity at companies. This is confirmed by the turnover declarations for the first quarter submitted to the Tax and Customs Board. This means the widening of the current account deficit in the first quarter can be seen as a potential positive impulse that will push the economy to grow faster.

The concern remains that services exports are some 4% down on the year, largely because of a fall of 8% in transport services and of 6% in travel services. Transport services are still influenced by the drop in transit flows, which have seen orders reduced for many service providers in the sector. The negative impact from Russia on travel services is starting to fade gradually. The drop in the first quarter came mainly from Finnish tourists contributing less to the Estonian economy. Over a longer term stretching back to 2011, the current account deficit was smaller than the average in the first quarter.

A possible increase in investment activity is also shown by the financial account, which shows liabilities to the rest of the world increased more than assets did in the first quarter. This made the Estonian economy a net borrower again for the first time in two years. Alongside the foreign aid received from the European Union, increased direct investment in non-financial companies lifted the net inflow of capital. The increase in direct investments came mainly from increase in intra-group debt liabilities though, which may have been just for the purpose of intra-group liquidity management. Changes in equity were smaller. The international net investment position fell by one percentage point in response to this, to -41% of GDP in the first quarter.

Source: Bank of Estonia

Author: Kristo Aab, Economist at Eesti Pank

Estonian imports increased by about a tenth in April

According to Statistics Estonia, in April 2016, the exports of goods increased by 2%and imports by 9% compared to April of the previous year. The imports of goods increased in almost all commodity sections.

In April, exports from Estonia amounted to 1.1 billion euros and imports to Estonia to 1.2 billion euros at current prices. The trade deficit was 171 million euros (in April 2015, it was 92 million euros).

The top destination country of Estonia’s exports in April was Sweden (19% of Estonia’s total exports), followed by Finland (16%) and Latvia (8%). There was an increase in exports to Sweden, Saudi Arabia, Nigeria and Denmark, with an increase in the exports of electrical equipment, prefabricated buildings and mechanical appliances to Sweden, cereals to Saudi Arabia, petroleum to Nigeria and electrical equipment and wood to Denmark. The biggest decrease occurred in exports to Turkey.

The biggest share in Estonia’s exports in April was held by electrical equipment, followed by wood and articles of wood, miscellaneous manufactured articles and agricultural products and food preparations. The rise in the exports of goods was significantly influenced by increased exports of electrical equipment and agricultural products and food preparations. In the chapter of electrical equipment, there was rise in the exports of apparatus and software for communication, and, in the section of agricultural products and food preparations, an increase in the exports of cereals. There was a fall in the exports of mineral products and base metals and articles of base metal.

The share of goods of Estonian origin in total exports was 72% in April. The exports of goods of Estonian origin increased the most in trade with Sweden (up 16 million euros), Saudi Arabia (up 10 million euros) and Kenya (up 7 million euros). The share of goods of Estonian origin was the largest in the exports of wood and articles of wood (97%), paper and paperboard (93%) and miscellaneous manufactured articles (88%).

The main countries of consignment in April were Finland (14% of Estonia’s total imports), Germany (11%) and Lithuania (9%). Compared to April 2015, the biggest increase occurred in imports from the USA, Poland and Germany. At the same time, the greatest decrease occurred in imports from Belarus and Russia. The fall in imports from these countries were influenced by a drop in the imports of mineral products and fuel components.

In April, the main commodities imported were electrical equipment, mechanical appliances and transport equipment. Imports increased in almost all commodity sections, with a drop observed only in the imports of mineral products. The rise in imports was influenced the most by increased imports of electrical equipment (up 26 million euros) and mechanical appliances (up 22 million euros).

In April compared to March, the exports of goods increased 1% and imports 3%.Diagram: Estonia’s foreign trade by month, 2014–2016

Read more from Statistics Estonia (click here)

Estonian economy grew in the 1st quarter

According to the revised estimates of Statistics Estonia, the gross domestic product (GDP) of Estonia increased 1.7% in the 1st quarter of 2016 compared to the 1st quarter of the previous year.

In the 1st quarter GDP at current prices was 4.9 billion euros. The seasonally and working-day adjusted GDP did not change compared to the 4th quarter of 2015 and grew by 1.8% compared to the 1st quarter of 2015.

The economic growth was driven by the increase in the receipts of net taxes on products, which was influenced by the increase in alcohol and fuel excises. As the rise in the excise rates was shifted one month forward, the proceeds from excises shifted from the end of the previous year to the 1st quarter of 2016.

In the 1st quarter of 2016, the GDP was driven the most by a rise in value added in trade due to wholesale and retail trade. At the same time, the Estonian economy was inhibited the most by a decrease in value added in energy.

Real GDP grew faster than the number of persons employed and hours worked. The number of persons employed grew 0.9% and the number of hours worked decreased by 0.1%. Therefore, labour productivity both per employee and per hour worked increased. The labour costs for GDP production have increased. In the 1st quarter of 2016, unit labour costs increased 2.9% compared to the same quarter of the previous year. Consequently, compensation per employee has grown faster than productivity.

The exports of goods and services of the total economy decreased in the 1st quarter of 2016 compared to the same quarter of the previous year. The exports of goods and services decreased for the fourth quarter in a row, being influenced the most by a decrease in the export of electrical equipment and mineral products (incl. motor spirit, fuel oils, gas).  Although the exports of goods and services decreased, the exports of other machinery and equipment positively contributed to foreign trade.

After a 4-month decrease,  the import of goods and services increased by 2.6% at real prices due to the growth in the imports of other machinery and equipment, motor vehicles and mineral products (incl. motor spirit, fuel oils, gas). Net export (i.e. the difference between export and import) was positive in the 1st quarter of 2016, amounting to 0.6% of the GDP.

Estonia’s economy was positively influenced by domestic demand. Domestic demand increased 3.0% at real prices, mainly due to household final consumption expenditures. Also, non-profit institution and government final consumption expenditures increased, but their growth slowed down.

Household final consumption expenditure increased 5.5%. The expenditures on housing, recreation, culture and catering increased the most.  The gross fixed capital formation decreased 5.8% in real terms. It was mainly influenced by a decrease in investments in buildings and structures by non-financial corporations and government sector.Diagram: The real growth of GDP and domestic demand

On 8 September 2016, Statistics Estonia will release the regular revision for 2012–2015 based on supply and use tables and annual business reports. The updated data for the 1st quarter of 2016 will be published on the same date.

Source: Statistics Estonia

Estonian wage pressures have not eased

  • An improved external environment and higher productivity are boosting economic growth
  • Rising food and energy prices will put an end in the second half of the year to the deflation that has been present for two years
  • Wage pressures have not eased, and growth in the average wage remaining close to 5% will force companies to make their production more efficient or exit the market

The Estonian economy will grow faster this year and in the next two as the external environment improves and productivity increases. Demand from trading partners has grown in the past six months at the rate that was forecast, and the data indicate that growth momentum will be maintained. In the short term growth will be boosted by increased productivity per employee, as the number of hours actually worked by the full-time employed has been temporarily reduced in expectation of improved demand to come. In the longer term it is only investment and employee development that can ensure higher productivity, and these should be supported by economic policies that favour growth and by increased competitiveness at both the state and company levels.

Increased investment alone is not enough to improve the growth capacity of the economy. The ratio of investment to GDP in Estonia is one of the highest in Europe, but the structure of investment should also be considered, and how efficiently the fixed assets acquired are used. The share of investment going into research and development in Estonia is one of the smallest in the European Union and so support for innovation is not strong. At the same time, the utilisation rate of production resources has been below the European Union average, which means that a relatively large part of the fixed assets acquired and the spending on them has been ineffective and has not supported growth.

The Estonian economy will become larger in the middle of this year than at its pre-crisis peak. The state of the economy is quite different from what it was during the boom some ten years ago, as corporate production capacity which is sustainable in the long-term is around 10% larger than the level of that time, and the economy is close to balance. Growth may still be forced slower by risks stemming from the external environment, the most important of which are the unsustainability of the growth in neighbouring countries that is founded on consumption; the migrant crisis, which is yet to be resolved; Brexit; volatility in commodities prices; complex geopolitical circumstances; and the bursting of a bubble in Swedish asset prices.

An accommodative monetary policy and access to funding aid growth in the economy, though the limited amount of labour available poses a problem. The central question for economic development is not how the supply of labour can be increased but how the actual available labour can be better used than before now. Sectors with low value added are particularly feeling the labour shortages, as their low average wages are hurting their competitiveness in the labour market.

Companies with low productivity and low wages exiting the market is a part of economic development. The movement of workers to jobs with higher productivity and higher wages will leave the structure of the economy more based on value added and will increase the incomes of residents. At the same time the changes in the structure of the economy should be in line with the redeployment of workers. Excessive pressure on companies with low productivity, one source of which could be steep rises in the minimum wage, could raise unemployment and harm the long-term outlook for growth.

Wage pressure has not eased and labour costs increased further at the start of this year at the expense of profits. Profits will stop declining when labour productivity increases. This will be aided by the flexible labour market, which has an institutional architecture that lets it adapt relatively easily compared to those in other countries. Collective agreements play only a small role beyond setting minimum wages and employers can decide directly about their wage costs. Even so it is possible that companies have been holding on to employees and raising wages because of overly optimistic expectations of growth in demand, and so wage growth could slow sharply.

Rising food and energy prices will put an end in the second half of the year to the deflation that has been present for two years, but for the year as a whole consumer prices will be at the same level as they were last year. Inflation will remain between 2% and 3% in the next two years and a large part of the rise in prices will come from tax rises, as excise increases on fuel, alcohol and tobacco. Higher inflation will restrain the rise in real household incomes, and that will then hold back growth in consumption over the next two years.

The financial situation of the Estonian general government is good and the budget has remained in surplus in recent years. However, the surplus has not been planned but has resulted from tax revenues being larger than expected or planned investment being postponed. Eesti Pank forecasts the budget position will be close to balance in the years ahead too, but there are major upside and downside risks. The structural balance rule in the State Budget Act ensures the long-term stability of state financing, but in order that companies and households not be faced with uncertainty about the future due to the government needing an unplanned additional source of funds, the government should set the target of keeping the budget in structural surplus or should allow more flexibility in its spending.

In the new budget strategy the government has put smoothing the economic cycle to the forefront and achieving nominal balance has been postponed. However, it will be harder in future to achieve balance. The budget was in surplus in recent years even though government wage costs increased rapidly and social benefit payouts increased strongly. This was possible because of a fall in capital expenditure and a tax-rich economic environment. Wage growth will slow in Estonia in the years to come and therefore the tax burden will decline, while the government is planning to increase investment, meaning pressure will increase to limit costs so the budget can stay in balance.

Source: Bank of Estonia

The number of job vacancies increased in 1Q

According to Statistics Estonia, there were about 8,300 job vacancies in the enterprises, institutions and organisations of Estonia in the 1st quarter of 2016. The number of job vacancies increased by 25% compared to the previous quarter and by 14% compared to the 1st quarter of 2015.

The rate of job vacancies, i.e. the share of job vacancies in the total number of jobs, was 1.5% in the 1st quarter of 2016; this is 0.3 percentage points higher than in the 4th quarter of 2015 and 0.2 percentage points higher than in the 1st quarter of 2015.

The rate of job vacancies was the highest in the economic activity of information and communication (3.6%) and the lowest in mining and quarrying (0.1%), which had the lowest rate of all economic activities in the 1st quarter of 2015 as well.

The largest share of vacant and occupied posts in the total number of jobs was recorded in manufacturing (19%), wholesale and retail trade (15.6%) and education (10%).

The increase in the number of job vacancies was the biggest in information and communication where there were two times more job vacancies than in the 1st quarter of 2015.

57% of the vacant and occupied posts were in Harju county (including Tallinn), followed by Tartu county (11%) and Ida-Viru county (7.5%). The rate of job vacancies was still the highest in Harju county (1.8%) and the lowest in Saare county (0.7%).

6,100 job vacancies (74%) were in the private sector and 2,200 (26%)  in the public sector. In the 1st quarter of 2016, the rate of job vacancies was 1.5% in both the public and the private sector. The public sector includes companies owned by the state or local governments.Diagram: Rate of job vacancies, 1st quarter 2007 – 1st quarter 2016

The movement of labour is characterised by labour turnover. In the 4th quarter of 2015, a total of 67,000 employees were hired or left their jobs, meaning there was a 2% decrease compared to the same quarter of 2014. Compared to the 4th quarter of 2014, the largest increase in labour turnover occurred in information and communication (25.5%) and in agriculture, forestry and fishing (24.0%).

The data are based on the job vacancies and labour turnover survey conducted by Statistics Estonia since 2005. In 2016, the sample includes 12,603 enterprises, institutions and organisations; the data of randomly selected units are imputed to the total population separately in each stratum.

The number of job vacancies is the total number of job vacancies on the 15th day of the second month of a quarter. A job vacancy is a paid post that is newly created, unoccupied or becomes vacant when an employee leaves, and for which the employer is actively trying to find a suitable candidate from outside the enterprise, institution or organisation concerned.

Source: Statistics Estonia

Estonian inflation in May 2016

According to Statistics Estonia, the change of the consumer price index in May 2016 was 0.1% compared to April 2016 and -0.9% compared to May of the previous year.

Compared to May 2015, goods were 0.9% and services 1.0% cheaper. Regulated prices of goods and services have fallen by 2.4% and non-regulated prices by 0.3% compared to May of the previous year.

Compared to May 2015, the consumer price index was influenced the most by transport, which became 5.9% cheaper, while petrol became 10% and diesel fuel 13.6% cheaper. The impact of electricity, heat energy and fuels, which became 7.9% cheaper, was nearly as big, with 11.5% cheaper heat energy contributing to almost two-thirds of the change. Out of the products which have become more expensive, alcoholic beverages had the biggest impact on the index, as their prices have increased 8.2% compared to May of the previous year. Compared to May 2015, of food products, the prices of processed fruit and sugar have increased the most (31% and 27%, respectively) and the prices of fresh vegetables have decreased the most (20% cheaper).

In May compared to April, the consumer price index was influenced the most by 11% cheaper fresh vegetables. 14% cheaper plane tickets which were bought for May and 11.6% more expensive accommodation services also had a bigger impact on the index.

Change of the consumer price index by commodity groups, May 2016
Commodity group May 2015 – May 2016, % April 2016 – May 2016, %
TOTAL -0.9 0.1
Food and non-alcoholic beverages -1.3 -0.3
Alcoholic beverages and tobacco 6.9 0.9
Clothing and footwear 3.8 0.9
Housing -3.8 -0.3
Household goods 0.3 0.1
Health 1.8 0.5
Transport -5.9 -0.3
Communications -1.8 -1.5
Recreation and culture 2.4 0.2
Education -13.5 0.0
Hotels, cafés and restaurants 2.4 2.3
Miscellaneous goods and services 1.4 0.5

Source: Statistics Estonia