The Dwelling Price Index most influenced by apartments in Tallinn

According to Statistics Estonia, in the 1st quarter of 2017, the Dwelling Price Index changed by -0.1% compared to the 4th quarter of 2016 and by 7.7% compared to the 1st quarter of 2016.

Compared to the previous quarter, the prices of apartments increased by 0.7% and the prices of houses decreased by 2.1%. Compared to the 4th quarter of 2016, the prices of apartments increased by 1.1% in Tallinn and by 3.2% in areas bordering Tallinn with Tartu and Pärnu cities, but decreased by 5.8% in the rest of Estonia.

Compared to the 1st quarter of 2016, the prices of apartments have increased by 6.9% and the prices of houses by 9.9%. Compared to the 1st quarter of the previous year, the prices of apartments increased by 7.9% in Tallinn, by 4.9% in areas bordering Tallinn with Tartu and Pärnu cities, and by 5.6% in the rest of Estonia.

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 (detached, semi-detached and terraced houses).

In the 1st quarter of 2017, the Owner-Occupied Housing Price Index changed by -2.2% compared to the 4th quarter of 2016 and by 7.4% compared to the 1st quarter of 2016.

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.

For the statistical activity “Dwelling price index and owner-occupied housing price index”, the main representative of public interest is the Ministry of Finance commissioned by whom Statistics Estonia collects and analyses the data necessary for conducting the statistical activity.

Source: Statistics Estonia

Code card identification still popular in Estonia

A recently conducted survey shows that though Estonian residents’ awareness of the need for cyber security is high, up to 40 percent still prefer code cards to other means of identification when logging in to their Internet bank.

The Nutikaitse 2017 project looked into residents’ skills and knowledge of cyber security procedures, and how aware they are of potential threats. One of the project’s advisors, Erki Peegel, told ERR’s radio news that a majority of respondents also applies this knowledge.

More than 90 percent of residents use passwords for their smart devices and don’t share them with others. At the same time, the fact that some 40 percent of respondents still prefer outdated code cards to more up-to-date means of identification when dealing with their bank online is a cause for worry, Peegel said.

Read more from ERR News

More corruption prevention needed in state-owned companies

An analysis by the National Audit Office indicates that a lot of state-owned companies don’t deal with the prevention of corruption systematically. This above all points to deficiencies in the work of their supervisory boards, the office finds.

The analysis revealed that many of state-owned companies have not established the internal guidelines required for the prevention of corruption, and that the assessment of corruption risks and raising employees’ awareness should be given more attention. Most companies have not made it possible for employees to report suspicions of corruption anonymously or determined an action plan that would explain how to behave in such a situation, including informing law enforcement and the general public.

Also, a lot of the companies haven’t established conditions for the giving and receiving of gifts. Still, they predominantly see measures against corruption as necessary, and ministries that manage corporations as well as public works are already applying best practices for the prevention of corruption.

Read more from ERR News

Tallinn airport tram line to enter into service at end of August

Tram service to Lennart Meri Tallinn Airport is expected to begin at the end of August, construction executives said as the completion of the principal structures of the tram tunnel under the railway line at Ülemiste was celebrated on Friday.


Construction of the extension of the number 4 tram line to Tallinn Airport began in spring 2016. Once service to the airport is established, some additional work such as road construction work, street lighting and landscaping work will continue through the end of October.

Read more on ERR News site, original source BNS

Estonia’s Russian-speaking residents against NATO presence

While among Estonian-speaking residents, support for the presence of NATO forces in Estonia is high, the majority of the Russian-speaking population is against it, results of a survey commissioned by the Ministry of Defence show.

Results of the survey show that 69 percent of Estonian residents support the presence of NATO forces in the country, and 23 percent are against it. Two years ago the indicators were 68 percent and 25 percent respectively.

While 89 percent of the Estonian-speaking population support the presence of allied forces and only 6 percent are against it, just 27 percent of the Russian-speaking residents support the presence while 57 percent are against it.

Sociologist Juhan Kivirähk of pollster Turu-uuringute AS that carried out the survey said that this attitude could also be seen looking at attitudes towards Estonia’s being a member of NATO.

The survey was carried out in March. 1,202 Estonian residents were interviewed. Since January 2000 and including this latest one, no fewer than 41 surveys have been conducted to sound out attitudes towards the alliance.

Source: BNS via ERR News

Housing loan portfolio up 6 pct year-on-year in April

  • Corporate and household loan and lease portfolio grew strongly in April, up almost 7% year-on-year
  • Issuance of new long-term loans to companies remained unchanged from April 2016
  • New housing loans have seen an increase relative to a year ago
  • Deposits with banks continued to grow faster than the loan and lease portfolio

Corporate and household loan and lease portfolio continued to grow solidly in April, increasing 6.6% year-on-year. The loan and lease stock grew by approximately 73 million euros, amounting to around 17.4 bn euros as of the end of the month.

The corporate loan and lease stock grew 7% year-on-year. Growth has been stable this year at a level close to last year’s average. Short-term loans have picked up over the past few months. Growth has been fastest for loans to the primary sector and trade companies. New long-term loans were issued to companies in the value of 228 million euros, a level more or less unchanged from April 2016.

Housing loan portfolio was up 6% year-on-year in April. Housing loans have been gathering pace since the second half of 2016. The housing and loan market activity has been intensified by an increase in transactions with new apartments. The volume of housing loans issued in the year to April has grown, relative to last year’s figure. There has been an increase in the number of contracts as well as the average amount of a loan.

Household car leasing continued to grow at a fast pace, up 14% year-on-year. The stock of overdraft and credit card loans started to increase in the second half of 2016 and gained slightly over 3% in March and April compared to a year earlier.

The average interest rate for new housing loans has risen slightly, resuming the mid-2016 level. The average interest rate of housing loans issued in April was 2.3%. The interest rate of corporate long-term loans was, on average, considerably high in April relative to the past months, affected by the refinancing of loans restructured to avoid default.

The volume of loans overdue over 60 days remained low in April. The volume of loans overdue over 60 days was 163 million euros, accounting for 1.1% of the loan portfolio. 97% of such loans are covered by loan-loss provisions.

Corporate and household deposits continue to outpace the loan and lease portfolio. Corporate and household deposits were up 11% year-on-year in April, amounting to almost 12 bn euros as of the end of the month. Annual growth in corporate deposits accelerated to 15%. Similar to previous months, household deposits gained approximately 8% on a year earlier.

Source: Bank of Estonia

Author: Mari Tamm, Economist at Eesti Pank

Wages and productivity are better aligned

  • Economic activity picked up and productivity growth increased at the same time that wage growth slowed
  • The fastest wage growth in the industrial sector was in construction and oil shale
  • Wage growth is slower in the service sector than in previous years
  • The purchasing power of those earning the average wage will increase more slowly because of inflation

The average gross monthly wage was 5.7% higher in the first quarter of 2017 than it was a year earlier. This was lower than the growth rate of 6.9% in the previous quarter. Growth in the productivity and wages of workers became better aligned, as economic activity picked up and productivity growth increased at the same time that wage growth slowed. This is shown both by data for exports and industrial output and by sentiment indicators.

Wage growth slowed in the service sector, but it did not change in the industrial sector. Within that sector, wage growth accelerated in construction and recovered strongly in the oil shale sector through mining and energy. A rebound in demand led construction to hire more workers and raise wages. Output increased by 20% in construction in the first quarter, with growth in the construction of buildings and in investment in infrastructure. Wage growth slowed in manufacturing however, though the number of workers in manufacturing also increased and the economic circumstances of the sector improved as growth in external demand increased.

Strong growth in private consumption and wage rises in the public sector have caused wages in the service sector to rise faster in recent years than the average for the economy, but this growth has now slowed a little. The growth did not slow in all parts of the service sector though, with wage growth increasing for example in retail and in information and communications. One-off factors played a role in this, such as the wage agreement in the health sector and smaller bonuses in the financial sector than in the previous year.

As consumer prices rise faster, the purchasing power of those earning wages will again increase markedly slower than nominal wages. Inflation stood at 3% in the first quarter, and so real wage growth was 2.6%. Looking back over a longer period, the purchasing power of the average wage has increased by 20% from before the crisis in 2008, and by some 30% since 2010, when the recession was at its deepest.

Source: Bank of Estonia

Author: Orsolya Soosaar, Economist at Eesti Pank

The size of the economy exceeded its potential

  • Growth accelerated in the first quarter in many countries
  • GDP growth was boosted by a recovery in output in the oil shale sector
  • Investments increased substantially

The Estonian economy grew by 4.4% over the year in the first quarter, and by 0.8% over the quarter. The size of the economy exceeded its potential output volume rather than remaining below it. This indicates that companies are using their production capacity more than usually, and it is hard to find the new employees needed for activities to expand. Further growth in the economy requires increased investment and productivity growth. The danger has increased though that the balance of the economy may worsen.

Growth accelerated in the first quarter of the year in many countries, including Estonia’s neighbours. The economies in Latvia, Lithuania and Finland grew by some 1.5% in the quarter. Quarterly growth in Estonia was a little lower, as it had accelerated in the fourth quarter of last year because of the stocking up of goods subject to excise. This meant that the contribution of net product taxes to GDP growth was smaller in the first quarter. Without the negative effect of net product taxes, the Estonian economy would have grown by 4.8%.

One reason for the faster growth in the economy was that oil-producing states have exited their recession, meaning that demand stopped falling in those countries. One country this applies to is Russia. The higher oil price is reflected in the Estonian economy primarily by the oil shale sector, and mining and energy made a large contribution to economic growth in the first quarter. More detailed data show that the financial results for oil shale oil producers were notably better than a year earlier. Equally though, the rise in the oil price has given a lift to inflation, restraining growth in private consumption. Private consumption at adjusted prices was only 0.6% more in the first quarter than a year previously.

The demand component of GDP that saw the biggest growth in the first quarter was investment, which was up 16.5%. This was also reflected by indicators for the construction sector, which have strengthened steadily since the start of the year. A recovery in investment is needed to shore up the supply side of the economy. Private sector investment has declined in recent years as corporate profits have shrunk, and this has reduced the potential for growth in the economy. This means it is now not possible for the Estonian economy to attain the levels of growth seen before the crisis, and the problem of imbalance in the economy may already arise at lower GDP growth rates.

The danger of increased imbalance is indicated by estimates that companies give of labour shortages, and also by the rapid increase in the use of production capacity. In recent years, some of those indicators have been above the average of the business cycle, and some have been below, but in the past few months these statistics have pointed to the economy outstripping its potential.

In such circumstances the government needs to be careful about stimulating the economy. As there are few available resources in the economy, an additional stimulation could lead to higher prices, which would make it harder for companies to invest. Widening a positive output gap through the budget would increase imbalance and so amplify the economic cycle, possibly ending in the economy crashing. Furthermore, it is wise to build up buffers in good times against possible rainy times in the future.

Survey data from companies looking to the months ahead indicate somewhat slower growth in the industrial sector, though expectations for output are still strong and show no sign of falling. Estimates of orders for the construction sector, which is focused on the domestic market, were above the average of the first quarter in April and May.

Source: Bank of Estonia

Author: Kaspar Oja, Economist at Eesti Pank

Inflation picked up a little in May

  • The immediate impact of the higher oil price on consumer prices has eased
  • Faster GDP growth will encourage inflation this year in Estonia and in the other countries of the euro area
  • Inflation will remain high until the end of the year

The rise in the consumer price index accelerated in the figures from Statistics Estonia to 3.3% in May 2017. Energy prices were up 5.3% over the year, and food prices, including alcohol and tobacco, were up 6.2%. Core inflation slowed to 1.2% though.

The structure of inflation has changed somewhat in recent months as energy prices are not rising as fast, but the broad-based inflation for food products continued in May. Estonia is something of an exception among euro area countries for the rapid rise in prices of food products. Inflation in May also saw some individual large changes in services prices, with prices for accommodation services standing 11% higher than they were a year earlier, possibly because of the Estonian Presidency of the European Union. Among residential services it was rent and waste disposal that drove inflation, but this was offset by cheaper communications services.

The immediate impact on consumer prices of the rise in the oil price that started in early 2016 has now eased. In January the global oil price was still 80% higher than it had been a year earlier, but by the end of May the difference over the year had dropped almost to zero. Prices of motor fuels were up 11% in May in Estonia, some 5 percentage points of which was due to the rise in excise on fuel in February. The indirect consequence of the higher oil price is transmitted into a second wave of inflation in prices for natural gas and heating energy. The prices of food and industrial commodities have fallen moderately on the global market in recent months. Commodities prices are being pushed down by uncertain demand in Asian countries.

The Estonian economy has improved noticeably since the second half of last year, and that has boosted the rise in consumer prices. Corporate profits increased in the first quarter by more than labour costs did for the first time since 2014, and they were helped in this by rapidly growing domestic demand and a revival in external demand. Corporate revenues rose because of increased export volumes and higher export prices, while on the cost side, the growth in wages slowed. The improved economic circumstances allowed companies to increase their profit margins and that will lead core inflation to rise in the second half of the year.

Inflation in Estonia is likely to remain high until the end of this year, because of both demand-side and supply-side (or cost-side) inflation factors. The coming months will see additional inflation caused by a rise in excise on alcohol. The key to long-term developments in prices is the price of oil on the global market, because oil has been relatively cheap for several years now. Eesti Pank will publish a new inflation forecast on 14 June 2017.

Inflation in Estonia and euro area

See better graph on Bank of Estonia website here

Author: Sulev Pert, Economist at Eesti Pank

Current account remains in surplus with backing from strong exports

  • The current account was unusually in surplus in the first quarter
  • More was paid back in debt liabilities to investors than was received as new investment in the country
  • The threat of external imbalance in the economy receded and the economy is close to the limits set by the European Commission

The surplus on the current account was 99 million euros in the first quarter, or about 2% of GDP of the same quarter. The current account was in surplus in the first quarter for the first time since 1993. The balance was more positive than usual mainly because of fast and quite broadly based growth in services exports and an unusually small net outflow of income. Estonia’s trading partners are doing well and so the demand for Estonian goods and services has increased. Sectors like transport services and oil production that had earlier been a drag on export growth are either approaching the bottom or have already reached it and are now starting to grow again. On the income side, the outflow of investment income was reduced primarily in the banking sector, but an important role was also played by one-off factors like fines paid to the Estonian state.

New direct investment of 188 million euros was made in the first quarter into the equity capital of foreign-owned companies, which is double the average of the past five years. At the same time, earlier direct investment was reduced by 177 million euros, meaning that the net sum was a modest inflow of new money into the country. Overall the total amount of direct investment in Estonia still declined, as more was paid back in debt liabilities to investors than was received as new investment. Estonia’s direct investments abroad increased slightly, and also at the expense of debt investments.

Estonian assets abroad grew more in the first quarter overall than external liabilities, so Estonia was a net lender. The net international investment position, which is the difference between external assets and external liabilities, continued to improve and climbed to -36% of GDP. This means Estonia is very close to the minimum set by the European Commission of -35%1. The Estonian economy is currently in a position where external demand has recovered and so the confidence of companies is relatively high. As further economic growth can mainly be achieved through investment and increased productivity, it is probable that net lending to the rest of the world cannot continue to this extent.

The European Commission looks at the net international investment position as one of the indicators of possible imbalances in an economy, and it has set the threshold for where the threats appear at -35% of GDP.

Source: Bank of Estonia

Author: Kristo Aab, Economist at Eesti Pank