- 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
Filed under: Economy in general |