Estonian economy is becoming more labour-focused

At the Äriplaan 2017 conference on Wednesday, Governor of Eesti Pank Ardo Hansson spoke of the increased share of labour-dependent sectors in the Estonian economy, which is also illustrated by the growth in wages in recent years. This means that the market is moving ever more decisively away from business models based on cheap labour.

“In the wake of economic growth comes a change in the structure of the economy, as the share of those sectors that are based on labour has increased, and the rises in wages of recent years have been in line with changes that make the economy more focused on labour. Our working age population has been shrinking at the same time. Taken together, this means that upwards pressure on wages will remain for the time being. Business models that are built on cheap labour cannot survive for long in such circumstances, and they will be squeezed out of the market over time. It can already be seen that the lower the wage is in any sector, the harder it is for employers there to find staff”, Mr Hansson explained. He added that it is equally possible that market pressure and overly optimistic expectations have pushed companies to raise wages to a level that could lead to a reaction at some point.

The assessments by exporting companies of their own competitiveness have deteriorated in recent years as labour costs have risen, but there has been some small improvement this year. Corporate investment activity increased in the first half of the year, which gives hope that growth may pick up in the economy. “Investment alone is not enough to guarantee faster growth. Some other countries have seen their economies grow as fast as the Estonian economy with lower levels of investment. We still have room to make more efficient use of investment”, added Mr Hansson.

He emphasised that faster economic growth depends primarily on the competitiveness of companies in foreign markets, and so it is necessary to continue developing targeted products for export. “Corporate competitiveness and production potential need support from economic policy not just in Estonia but throughout Europe. Reform of labour and product markets and the business environment would help to ensure this, but such reforms are stalled in Europe. The central banks of the euro area can use monetary policy to support the economy, but this alone will not create sustainable growth”.

There will be minor gains for the global and European economic climates next year, but forecasts indicate the increase in economic activity in Estonia’s neighbourhood will be small.

Source: Bank of Estonia

Estonian gross debt level was 10 pct of GDP in 2015

According to the adjusted data of Statistics Estonia, in 2015, the Estonian general government surplus was 0.1% and the gross debt level was 10.1% of the gross domestic product.

At the end of 2015, the total revenues of the general government exceeded the expenditures by 27.2 million euros, accounted as the Maastricht deficit criteria. After a methodological change in the recognition of the contributions to the new public enterprises, the deficit of the central government sub-sector was 52.1 million euros by the end of 2015. The consolidated budget of the local government sector was 55.9 million euros in surplus. The budget surplus of social security funds was 23.4 million euros.

The consolidated debt of the general government (Maastricht debt) amounted to 2 billion euros by the end of 2015. Compared to the preliminary estimate published in March, the central government’s debt compilation was adjusted. From 2012 onwards, the statistical recording of the monetary resources on the Treasury’s group accounts were changed. As a result of this adjustment the central government’s total debt rose to 2.2 billion euros by the end of 2015, caused by the added liabilities towards other subsectors of the general government. This change in accounting of monetary resources of subsectors did not affect the consolidated debt of the general government.

Also, a change was introduced in the statistical recording of the Estonian euro coins, giving rise to the debt level of both the central government subsector as well as the general government  sector by 41.4 million euros at the end of 2015.

The local governments’ debt remained unchanged and accounted for 0.7 billion euros. Social security funds did not contribute to the debt of the general government sector. Changes in accounting were made according to the instructions of Eurostat.Diagram: Surplus/deficit of the general government in Estonia by sub-sectors, 2011–2015

In Estonia, the general government sector comprises three sub-sectors: 1) central government (state budget units and extra-budgetary funds, foundations, legal persons in public law); 2) local governments (city and rural municipality governments with their subsidiary units, foundations); 3) social security funds (Estonian Health Insurance Fund, Estonian Unemployment Insurance Fund).

Source: Statistics Estonia

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Use of Internet in Estonia

According to Statistics Estonia, in the 1st quarter of 2016, 86% of households in Estonia had Internet access at home. There has been an increase in the share of people having used e-commerce services more than five times in the last three months.

A fixed broadband connection (wired or wireless) continues to be the most popular type of Internet connection, as it was used in 90% of the households with Internet access. 88% of households without children and 92% of households with children had a fixed broadband Internet connection (wired or wireless). There has been a significant increase in the use of mobile Internet. While in the 1st quarter of 2015 slightly more than a half (56%) of households had mobile Internet, then according to data from the 1st quarter of 2016 there was mobile Internet in a little more than three quarters (78%) of households. The use of fixed broadband connection (either wired or wireless) is more popular among households living in urban settlements, while mobile Internet is more popular among households living in rural settlements. Households without an Internet connection at home cited lack of interest as the main reason for not having one.

In the first three months of 2016, 87% of persons aged 16–74 had used the Internet. The share of Internet users is the largest among 16–54-year-olds (90%) and the smallest among 55–74-year-olds (65%). Among persons with basic or up to primary education, seven out of ten used the Internet, while among persons with higher education nine out of ten used the Internet.

Nine out of ten 16–74-year-old Internet users had used the Internet in the last three months for Internet banking, reading newspapers and magazines, using e-mail, and seeking information about products and services. 64% of the 16–74-year-old Internet users listened to music online and 43% watched a television programme (including live and catch-up programmes).

A little bit more than a half (56%) of 16–74-year-olds has bought products or services online in the last 12 months. Compared to males, the share of e-commerce users is 6 percentage points higher among females. Items that were bought online the most included travel and accommodation services (59% of the users of e-commerce), tickets for concerts, cinema, theatre and other events (55%), insurance policies (including those offered as a package), and clothes, shoes or sports equipment (51%).

In the 1st quarter, slightly less than three quarters (73%) of the users of e-commerce bought goods or services online up to five times. Younger e-commerce users (aged 16–24) made online purchases more often (3–5 times) than older e-commerce users (aged 65–74), who did it less frequently (1–2 times). In 43% of the cases, the price of goods bought online (excl. expenditure on shares and other financial services) remained between 100–499 euros. There were more males than females among persons having made online purchases for over 500 euros. Compared to the 1st quarter of 2015, the share of those who made online purchases more often than five times increased by 3 percentage points and the share of persons having spent more than 500 euros grew by 2 percentage points.

In the business sector, the use of cloud services designed to share resources via the web – software, hardware, or combinations thereof – has become increasingly more widespread. More than a fifth of Estonian enterprises have bought paid cloud services. The most popular cloud services include financial and operational software, office software, file storage and recording services and e-mail services. The main users of paid cloud services are enterprises of the information and communications sector (54%), who are providers of cloud services themselves, too.

The use of big data is spreading rapidly as a new trend. Big data are produced in the implementation of digital technology and are forwarded automatically from machine to machine. Such data are generated, for example, with the help of production process sensors, by logging various transactions, but also as a result of various social media activities. 13% of Estonian enterprises have analysed big data, with the employees of the enterprises themselves having performed the analyses. Big data are analysed the most by enterprises of the information and communications sector (29%), followed by water supply, sewerage, waste management and waste management enterprises (28%), and financial and insurance enterprises (21%).

The use of information technology among persons aged 16–74 and in households and enterprises is studied based on a harmonised methodology in all European Union Member States. Statistics Estonia studies the use of information technology in households and among inhabitants aged 16–74 as an independent survey since 2014 (from 2005 to 2013 it was part of the Labour Force Survey). The survey is carried out in the 2nd quarter, with the 1st quarter being the reference period. A household is a group of persons who live at the same address and share joint financial resources and whose members consider themselves to be members of one household, while a family is based on family relationships or kinship.

Statistics Estonia has surveyed the use of information technology in enterprises since 2001. In 2016, approximately 3,400 enterprises participated in the survey. The survey involves enterprises with 10 or more persons employed.

Source: Statistics Estonia

Estonia has received more direct investment than many other newer members of the EU

  • Estonia’s foreign direct investment position* at the end of 2015 put it behind only Hungary in volume among the newer European members from Central and Eastern Europe
  • The Estonian current account in 2015 posted its largest surplus since independence was regained
  • Both exports and imports of goods and services were down last year, but imports by more
  • The current account was affected by large dividends paid out by the banking sector

Adjusted data show that the current account of the Estonian balance of payments had a surplus of 447 million euros in 2015, the largest since independence was regained. This does not reflect the strength of Estonian exports however, so much as a general decline in the trade of goods. Although both exports and imports of goods and services were down, it was the faster decline in imports that led the surplus in goods and services to grow. The surplus on the current account increased because the outflow of investment income slowed as large-scale extraordinary dividends were paid out by the banking sector in the middle of the year, and the income tax paid on these dividends to the Estonian state principally slowed the outflow. A little more was received from the European Union Structural Funds for infrastructure development than in 2014. The outflow of capital from the financial account was one billion euros larger than the inflow and the main channel for the outflow was portfolio and other investment.

Estonia was behind only Hungary for the foreign direct investment position among the newer European members from Central and Eastern Europe, and at the end of 2015 the direct investment position in Estonia was almost the same as the GDP of the year.

* Direct investment data for Estonia cover the period 1993-2015.

Figure. Direct investment position in Central and Eastern European countries at the end of 2015 as % of GDP
Direct investment position in Central and Eastern European countries at the end of 2015 as % of GDP

Sources: Eurostat, Eesti Pank

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The current account surplus was smaller in July than a year ago

The flash estimate1 put the Estonian current account at 45 million euros in surplus in July 2016. The surplus on the goods and services account was 86 million euros, which was 14 million euros less than at the same time a year earlier. The decline of 4.5% in goods exports was faster than the 2.4% in imports, and this increased the deficit on the goods account to 124 million euros. The surplus on the services account is usually at its peak for the year in July because of the tourism season, and the surplus in services was high this year too at 210 million euros. Exports of services were brought down by transport services and boosted by travel services and other services, while imports of all the main types of services increased. The inflows of investment income and other income declined while outflows increased. The net outflow on the primary and secondary income accounts totalled 41 million euros, which was 20 million euros more than at the same time a year earlier.

The sum total of the current and capital accounts was 57 million euros in July. This means that the Estonian economy was a net lender to the rest of the world, so the country as a whole invested more resources abroad than it received from there.

Eesti Pank publishes the flash estimate of the balance of payments monthly for the last month but one. Eesti Pank will publish the balance of payments for the third quarter of 2016 on 9 December 2016.

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In July, trade decreased

According to Statistics Estonia, in July 2016, the exports of goods decreased by 6% and imports by 4% compared to July of the previous year. The fall in the exports and imports of goods was influenced the most by the trade with European Union countries.

In July, exports from Estonia amounted to 0.9 billion euros and imports to Estonia to 1.1 billion euros at current prices. There was a significant fall in trade with EU Member States: exports dropped by 8% and imports by 7% compared to July 2015. The trade deficit was 165 million euros (in July 2015, it was 156 million euros).

The top destination country of Estonia’s exports in July was Finland (16% of Estonia’s total exports), followed Sweden by (16%) and Latvia (10%). There was a fall in exports to all neighbouring countries, with the biggest fall having occurred in exports to Sweden and Latvia.  Compared to July 2015, there were decreased exports of electrical equipment and prefabricated buildings of wood to Sweden, and decreased exports of motor spirits and transport equipment to Latvia. The biggest increase occurred in exports to Nigeria and Mexico.

The biggest share in Estonia’s exports in July was held by electrical equipment, followed by mineral products, wood and articles of wood, agricultural products and food preparations, and mechanical appliances. The drop in exports was greatly influenced by a fall in the exports of mineral products (incl. motor spirits) and raw materials and products of the chemical industry (down by 22 million and 10 million euros, respectively).

The main countries of consignment in July were Finland (13% of Estonia’s total imports), Germany (12%) and Lithuania (10%). The biggest drop occurred in imports from Finland and Latvia. Compared to July 2015, there was a fall in the imports of optical appliances from Finland and of electrical equipment from Latvia. The greatest increase occurred in imports from China.

In July, the main commodities imported were electrical equipment, agricultural products and food preparations, mechanical appliances, transport equipment and mineral products. The fall in imports was influenced the most by decreased imports of mineral products (down by 25 million euros).

In July compared to June, the exports of goods decreased by 10% and imports by 7%.

The share of goods of Estonian origin in total exports was 69% in July, being the lowest level this year. The fall in the exports of goods of Estonian origin compared to June 2016 was influenced the most by a drop in the exports of electrical equipment, furniture, base metals and articles of base metal, and wood and articles of wood. Compared to June, the biggest increase has occurred in the exports of mineral products (inc. light fuel oil and electrical energy). By country, the exports of goods of Estonian origin decreased the most in terms of exports to Sweden, Mexico, Finland, Germany and Belgium.Diagram: Estonia’s foreign trade by month, 2014–2016

Source: Statistics Estonia
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There were 9,500 job vacancies in Estonia in Q2

According to Statistics Estonia, there were about 9,500 job vacancies in the enterprises, institutions and organisations of Estonia in the 2nd quarter of 2016. The previous time when the number job vacancies exceeded 9,000 was in 2008. The number of job vacancies increased by 15% compared to the previous quarter and by 13% compared to the 2nd quarter of 2015.

The rate of job vacancies, i.e. the share of job vacancies in the total number of jobs, was 1.7% in the 2nd quarter of 2016, being 0.2 percentage points bigger than in the previous quarter and in the 2nd quarter of 2015.

The rate of job vacancies was the highest in accommodation and food service activities (3.7%), administrative and support service activities (3.5%) and information and communication (3.3%); and the lowest in agriculture, forestry and fishing (0.3%), water supply (0.7%), construction (0.8%) and real estate activities (0.8%).

The total number of posts and the number of vacant posts continued to be the highest in manufacturing and wholesale and retail trade. Compared to the 2nd quarter of 2015, the number of job vacancies grew the most in real estate activities, accommodation and food service activities and in electricity, gas, stream and air conditioning supply. Year-over-year, the number of job vacancies dropped the most in agriculture, forestry and fishing, mining and quarrying and other service activities.

70% of the vacant posts were in Harju county (including Tallinn), followed by Tartu county (9%) and Ida-Viru county (5%). The rate of job vacancies was still the highest in Harju county (2.1%) and the lowest in Viljandi (0.7%), Hiiu (0.8%) and Rapla counties (0.8%).

7,200 job vacancies (76%) were in the private sector and 2,300 (24%) in the public sector. In the 2nd quarter of 2016, the rate of job vacancies was the highest in foreign private sector institutions (2.5%) and state institutions (2.1%) and the lowest in Estonian private sector organisations (1.5%) and local governments (1.1%).Diagram: Rate of job vacancies by economic activity, 2nd quarter, 2015–2016

The movement of labour is characterised by labour turnover (the total of engaged employees and those who have left), which amounted to 73,000 in the 1st quarter of 2016, denoting an 8% increase compared to the previous quarter and a 19% increase compared to the 1st quarter of 2015. Compared to the 1st quarter of 2015, the largest increase in labour turnover occurred in mining and quarrying, water supply, agriculture, forestry and fishing, and information and communication.

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. As of the 2nd quarter of 2016, Statistics Estonia uses the data of the Employment Register of the Estonian Tax and Customs Board to pre-fill the survey questionnaires.

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
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