Construction volumes increased in 2Q

According to Statistics Estonia, in the 2nd quarter of 2017 compared to the same quarter of the previous year, the total production of Estonian construction enterprises in Estonia and foreign countries increased 18%. Taking into account only the Estonian construction market, the construction volumes increased 25%.

In the 2nd quarter of 2017, the production value of construction enterprises amounted to 627 million euros, of which the production value of building construction was 391 million euros and the production value of civil engineering was 236 million euros. Compared to the 2nd quarter of 2016, the volume of building construction increased 9% and the volume of civil engineering by more than a third.

Domestic construction market was affected the most by civil engineering, which resumed growth at the beginning of this year. Building construction also continued to grow. Compared to the same period of the previous year, construction volumes increased in new building construction as well as in repair and reconstruction work.

The construction volume of Estonian construction enterprises in foreign countries decreased nearly a half compared to the 2nd quarter of 2016, mainly on account of smaller volume of building construction. Construction volumes in foreign countries accounted for 6% of the total volume of construction in the 2nd quarter of 2017; the share in the same period a year ago was 12%.

According to the Register of Construction Works, in the 2nd quarter of 2017, the number of dwelling completions was 1, 422, which is 97 dwellings more than in the same period a year ago. Approximately a half of the completed dwellings were in blocks of flats situated in Tallinn.

There is still demand for new high-quality dwellings in a good location. In the 2nd quarter of 2017, building permits were granted for the construction of 2,066 dwellings, which is over a tenth more than in the 2nd quarter of 2016. The most popular type of building was a block of flats.

The number of completed non-residential buildings was 243 with a useful floor area of 216,000 square metres – these were primarily new storage and industrial premises. Compared to the 2nd quarter of 2016, both useful floor area and volume of completed non-residential buildings increased.

Construction volume index and its trend, 1st quarter 2003 – 2nd quarter 2017

The statistics are based on the questionnaire “Economic activity, quarter”, the submission date of which was 21 July 2017. Statistics Estonia published the quarterly summary in 26 working days. For the statistical activity “Financial statistics of enterprises (quarterly)”, the main representative of public interest is the Ministry of Economic Affairs and Communications, commissioned by whom Statistics Estonia collects and analyses the data necessary for conducting the statistical activity.

Source: Statistics Estonia

The profit of the business sector increased in 2Q

According to Statistics Estonia, in the 2nd quarter of 2017, the total profit of the business sector was 827 million euros, which was 22% more than in the same period the year before.

Compared to the 2nd quarter of 2016, total profit increased in most economic activities. The biggest contribution to the total profit of the business sector was made by transportation and storage, and manufacturing enterprises. The growth in the sector’s profit was negatively affected mainly by real estate and information and communication enterprises.

In the 2nd quarter of 2017, enterprises sold goods and services for 14.0 billion euros, which was 10% more than in the same period of the previous year. The turnover of trade enterprises, which have the biggest share in the total turnover of the business sector, increased 9%, mainly due to an increase in the turnover of wholesale trade. The growth was supported also by retail and motor trade. The turnover of manufacturing enterprises increased 4% year over year.

Compared to the same period a year before, the total expenditure of enterprises increased 10%. Personnel expenses also increased 10%. The number of persons employed increased 4% and the number of hours worked 2%. Labour productivity of the business sector on the basis of value added amounted to an average of 5,890 euros in a quarter per person employed, i.e. 9% more than in the 2nd quarter of 2016.

The investments of enterprises resumed growth at the beginning of this year. In the 2nd quarter of 2017, enterprises invested 636 million euros, which was 27% more than in the same period the year before. The investments were made mostly in machinery and equipment, transport equipment and buildings. The main investors were transportation and storage, trade, and manufacturing enterprises, accounting for more than a half of the total investments of all enterprises. Compared to the 2nd quarter of 2016, all investments increased, with the biggest increase registered in investments in transport equipment.

Total profit of the business sector, 1st quarter 2010 – 2nd quarter 2017

The statistics are based on the questionnaire “Economic activity, quarter”, the submission date of which was 21 July 2017. Statistics Estonia published the quarterly summary in 27 working days. For the statistical activity “Financial statistics of enterprises (quarterly)”, the main representative of public interest is the Ministry of Economic Affairs and Communications, commissioned by whom Statistics Estonia collects and analyses the data necessary for conducting the statistical activity.

Source: Statistics Estonia

Tight labour market lifts Estonian wages

• Wage growth will remain relatively high as labour demand increases more than supply.
• Nevertheless, the gap between wage and productivity growth rates will narrow this year.

The growth of the average gross wage accelerated in the second quarter (+6.8%, over the year), partly due to a base effect. According to our estimates, economic growth remained fast and the number of employed decreased in the second quarter, so the gap between the growth rates of wages and productivity continued to narrow.

Higher sales help companies cope with growing labour costs. Enterprises’ sales increased by 10% and profits grew by 22%, over the year, in the second quarter. Profits rose in most economic activities.

The rapid growth in the average wage is supported by a lack of suitable labour and a 9.3-percent increase in the minimum wage. The labour force participation rate was the highest in 20 years in the second quarter. The number of vacancies reached the highest in 8 years in the first quarter. The lack of suitable labour is the most important factor restricting business for a quarter of manufacturing and service companies and a half of construction companies, according to a survey by the Estonian Institute of Economic Research. Nevertheless, the growth of the average gross wage in the construction sector remained around the average in the whole economy in the first half of the year.

Average wages rose in most sectors. Wage growth was faster in the energy sector where wages grew modestly in the past due to a substantial decline in energy prices. The shortage of labour pushed up wages in IT. Average wages remained unchanged in the real estate sector and grew only slightly in the primary sector. In agriculture and real estate, profits have been smaller than in the past and the rate of job vacancies lower than the average in the total economy.

In 2017, the purchasing power of employees is expected to grow slower than during previous years as inflation accelerates. The real growth of the average net wage rose by 3.7% in the first quarter of this year. This will limit households’ consumption. Retail sales volumes grew by only 2.3% in the first half of the year.

In 2018, wage-earners’ labour income will jump up again, due to a substantial increase in their nontaxable income. This change in taxes could also lower their wage expectations for next year. Wage growth will remain relatively high as labour demand increases more than labour supply. Labour productivity is expected to improve and the gap between wage and productivity growth rates to narrow in 2017-2018.

Source: Swedbank

Economic growth in 2Q was the fastest of the last 6 years

Swedbank expected continued robust GDP growth in the second quarter, but 5.7% yoy (1.3% qoq swda) was above expectations. As inflation has picked up, GDP nominal growth accelerated to 10.2% yoy.

Statistics Estonia revised up GDP levels and growth rates of the last four years (2013-2016), whereas GDP growth in 2016 was revised to 2.1% yoy (from 1.6%).

Productivity growth has improved considerably 

Fast economic growth, whereas the number of employed and worked hours hasn’t changed substantially, has accelerated growth of labour productivity. At the same time, increase of labour costs in business sector has stabilised. This combination has enabled enterprises to raise their profits (up by 20% yoy in 1H) and improved their ability to invest.

Business and public sector investment growth is very robust 

Gross fixed capital formation increased 18% in real terms, whereas non-financial sector invested 21% and government sector even 47% more than a year ago. Government sector increased its investments primarily in buildings and structures, followed by transport equipment. This has contributed strongly to the growth in construction sector, which contributed the most to the GDP growth in 2Q. We expect that government sector will use gradually more EU funds for its investments and that the contribution of its gross fixed capital formation to the economic activity will remain robust at least in 2017-2018. Industrial sector confidence has rised to the highest level of the last 6 years and capacity utilisation is already above its long-term average – therefore we expect that improved outlook for demand brings about the need to invest more.

Mobile equipment behind the deceleration of export growth 

Despite strong foreign demand, export growth decelerated to 1% yoy in real terms, whereas export of goods decreased even slightly. Mobile equipment was primarily behind it. Weak result in export of goods limited the growth of manufacturing sector’s value added. We expect that the decrease in export of mobile equipment will continue at least in the coming months and will have strongly negative impact on Estonia’s export of goods’ total picture (the share of mobile equipment is ca 10% of total export of goods). However, export orders of other products are increasing and enterprises have become even more optimistic about export outlook of their production.

Private consumption has slowed as expected

Private consumption increased 2% in real terms in 2Q, but has decelerated to only 1.5% in 1H (4.3% in 2016). The major contribution comes from less consumption of alcoholic beverages and tobacco, which has been going on for a longer time. We expect that private consumption slows this year, despite better consumer confidence as real growth of net wages decelerates. In 2018, wage-earners’ labour income will jump again, due to a substantial increase in their nontaxable income. This is expected to accelerate the growth of private consumption again.

Estonian economic outlook is good 

Improved foreign demand will contribute to the economic growth during the next few years and investment growth is expected to remain strong. After a slowdown this year, growth of private consumption is expected to accelerate again next year. As GDP has increased already 5.2% in real terms in 1H this year, we are considering to revise up our GDP forecast for 2017 (recently published 3.5%).

Source: Swedbank

Labour force participation rate at highest

According to Statistics Estonia, in the 2nd quarter of 2017, the unemployment rate was 7%, the employment rate 66.9% and the labour force participation rate 72%. Compared to the 2nd quarter of 2016, the employment rate remained on the same level and the labour force participation rate reached its highest level for 20 years.

Compared to the 2nd quarter of 2016, the number of working-age persons continued its slow decrease, but the number of persons active in the labour market (the sum of employed and unemployed persons) remained the same (702,000). The number of employed persons decreased by 3,500 persons and the number of inactive persons by 6,200 persons, amounting in the 2nd quarter of 2017 to 653,500 and 274,000, respectively.

The labour force participation rate increased in the 2nd quarter mainly due to an increase in the number of unemployed persons, one of the reasons for which is that persons who have thus far been inactive have become active. As a result of the Work Ability Reform, the number of people inactive due to illness or injury has decreased in the past couple of years. In the 2nd quarter, compared to the 1st quarter of 2017, the number of persons inactive due to illness or injury decreased by 5,700 persons. In the past 10 years, the number of persons inactive due to ongoing studies has shown a steady decline. This is rather due to an increasing wish to work during studies or study whilst working than a decline in the number of learners. The continued decline in the number of inactive older persons (50–74-year-olds) also plays a part in the highest labour force participation rate for 20 years. The labour force participation rate for older persons was 60.7% and the unemployment rate 5.1%.

Compared to the 1st quarter of 2017, when the number of unemployed persons was relatively small, in the 2nd quarter, the number of unemployed persons increased by 10,600 persons. Compared to the same period of the previous year, the change is smaller – the number of unemployed persons increased by 3,700 persons, reaching 49,000, which is less than, e.g., in the 3rd quarter of 2016. The unemployment rate was 5.6% in the 1st quarter of 2017, 7% in the 2nd quarter and 6.5% in the 2nd quarter of 2016. In the 2nd quarter of 2017, the unemployment rate for Estonians was 5% and for non-Estonians, 11%.

As expected, the employment rate was highest among the 25–49-year-old males (88%). This is one percentage point less than in the 2nd quarter of 2016. The increase in the employment rate of females of the same age was less than one percentage point and was 77.3% in the 2nd quarter of 2017.

The share of full-time and part-time employment in the main job and the share of underemployment has changed in a year by less than 0.5 percentage points. In the 2nd quarter of 2017, there were 5,000 persons in part-time employment who would have preferred to work more than they did (the underemployed).

In conclusion, there were minor fluctuations in the labour market indicators, but nothing unusual, and the 2nd quarter of 2017 did not bring about any major changes.

Labour force participation rate, employment rate, unemployment rate

The unemployment rate is the share of the unemployed in the labour force (the sum of employed and unemployed persons). The employment rate is the share of the employed in the working-age population (aged 15–74). The labour force participation rate shows the share of the labour force in the population aged 15–74. The estimates are based on the data of the Labour Force Survey.

Statistics Estonia has been conducting the Labour Force Survey since 1995 and every quarter, 5,000 persons participate in the survey. The Labour Force Survey is carried out by statistical organisations in all the European Union Member States on the basis of a harmonised methodology. In Estonia, the main representative of public interest is the Ministry of Social Affairs, commissioned by whom Statistics Estonia collects and analyses the data necessary for conducting the statistical activity.

Source: Statistics Estonia

Lack of labour a growing concern

• The labour market remained tight.
• The unemployment rate increased due to a reform.

In the second quarter of 2017, the unemployment rate was 7.0%, the employment rate 66.9% and the labour force participation rate 72% in Estonia. The labour force participation rate reached its highest level in 20 years. The participation rate is on the rise due to the tight labour market and the work ability reform that motivates people with disabilities to look for a job.

The rate of job vacancies, i.e., the share of job vacancies in the total number of jobs, increased to 2.0% in the first quarter. A shortage of labour is the most important factor restricting business for a quarter of manufacturing and service companies and for a half of construction companies. Therefore, wage pressures will persist.

Employment remained around the same level as last year (-0.5%, over the year) in the second quarter. The number of employees decreased in the public sector and agriculture, while remained at last year’s level in the manufacturing industry. We expect employment to increase again in the second half of this year as demand has strengthened in the export and domestic markets.

The unemployment rate grew as expected (7.0% in the second quarter). The registered unemployment rate of 4.7% was also higher than last year. The work ability reform gradually moves the disabled from the inactive into the unemployed category in labour statistics. At the same time, the number of the unemployed not affected by the reform has decreased.

Source: Swedbank

The biggest share in exports was held by electrical equipment

According to Statistics Estonia, in June 2017, the exports of goods increased by 11% and imports by 6% compared to June 2016. In the second quarter, compared to the 2nd quarter of the previous year, exports grew 8% and imports 7%.

In June 2017, 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 123 million euros (in June 2016, it was 156 million euros).

The top destination countries of Estonia’s exports in June were Finland (16% of Estonia’s total exports), Sweden (14%) and Latvia (9%). The biggest increase occurred in exports to the Netherlands (up by 34 million euros), Russia (up by 29 million euros) and Germany (up by 21 million euros). In exports to the Netherlands, the exports of mineral products (incl. shale oil), to Russia, the exports of mechanical appliances and to Germany, the exports of electrical equipment (incl. communication equipment) and metal waste increased. The biggest decrease occurred in exports to Sweden (down by 30 million euros), where less electrical equipment was exported.

The biggest share in exports was held by electrical equipment, followed by mineral products, and wood and articles of wood. The greatest increase was in the exports of mineral products (up by 51 million euros), mechanical appliances (up by 25 million euros), and wood and articles of wood (up by 22 million euros). At the same time, the exports of electrical equipment decreased (down by 48 million euros).

The share of goods of Estonian origin in total exports was 72% in June. In June 2017, the exports of goods of Estonian origin increased 8% and re-exports 18%. The rise in the exports of goods of Estonian origin was affected the most by an increase in the exports of mineral products (incl. shale oil, electricity) and wood and articles of wood (incl. coniferous saw-timber, wooden windows and doors).

The main countries of consignment in June 2017 were Finland (13% of Estonia’s total imports), Germany (11%), Lithuania (9%) and Sweden (9%). The biggest increase occurred in imports from Sweden (up by 28 million euros), Latvia, the Netherlands and France (all up by 10 million euros). Imports from Hungary decreased the most.

The main commodities imported to Estonia were electrical equipment, transport equipment, and agricultural products and food preparations. The biggest increase was in the imports of transport equipment and base metals and articles of base metal, and the biggest fall occurred in the imports of electrical equipment.

In the 2nd quarter of 2017, exports of goods from Estonia amounted to 3.3 billion euros and imports to Estonia to 3.7 billion euros. The trade deficit in the 2nd quarter was 447 million euros (in the 2nd quarter of 2016, it was 460 million euros). In the first half-year, exports of goods increased by 10% and imports by 11% compared to the same period of the previous year.

In the 2nd quarter of 2017, the growth in exports compared to the same period of the previous year was supported by increased exports of mineral products (up by 141 million euros), wood and articles of wood (up by 47 million euros), and base metals and articles of base metal (up by 37 million euros), which also compensated for the decline in the exports of electrical equipment (down by 83 million euros). In the comparison by countries, exports have increased the most to Russia, the Netherlands and Germany. At the same time, exports to Sweden have decreased the most.

In the 2nd quarter, the growth in imports was significantly affected by an increase in the imports of transport equipment (up by 101 million euros), mineral products (up by 70 million euros) and raw materials and products of chemical industry (up by 45 million euros). The imports of electrical equipment decreased significantly (down by 73 million euros). By countries, imports in the 2nd quarter of 2017 compared to the 2nd quarter of 2016 grew the most from Russia, Sweden and Turkey. Imports from Hungary decreased the most.

Read more from Statistics Estonia

Production increased in the energy sector and manufacturing

According to Statistics Estonia, in June 2017, the production of industrial enterprises increased 15% compared to June 2016. Production increased in the energy sector and mining and quarrying as well as in manufacturing.

The nearly two-fold increase in the production of mining and quarrying compared to the previous year was caused by an extraordinary low amount of oil shale production in June 2016.

In June, manufacturing production was 10% higher compared to the corresponding month of 2016. Production growth was broad-based – in June, production surpassed the volume of June 2016 in two-thirds of the branches of industry. The growth in production was mostly due to an increase in the manufacture of wood, metal and food products and electrical equipment. Production increased also in the manufacture of motor vehicles, machinery and equipment and building materials. Among the branches of industry with larger shares, production fell in the manufacture of electronic products, furniture and textiles.

In June, 66% of the total production of manufacturing was sold to the external market. According to unadjusted data, the sales of manufacturing production for exports increased 3% and sales to the domestic market 17% compared to June 2016.

In June 2017, the seasonally adjusted total industrial production rose 1% compared to the previous month, production in manufacturing increased by 3%.

Compared to June 2016, the production of electricity increased 36% and the production of heat 15%.Volume index of production in manufacturing and its trend

Read more from Statistics Estonia

The turnover of retail trade enterprises increased 5 pct in June

According to Statistics Estonia, in June 2017, the turnover of retail trade enterprises increased 5% at constant prices compared to June 2016. While in May turnover increased 1% compared to the same month of the previous year, in June growth accelerated.

In June 2017, the turnover of retail trade enterprises was 593.1 million euros.

The turnover growth of stores selling manufactured goods accelerated in June. While in May the turnover of these stores increased 5% compared to the same month of the previous year, in June the growth was 11%. Turnover increased in all economic activities. The increase was largest in stores selling via mail order or the Internet, with sales increasing nearly a third (32%) in year-over-year comparison. A higher than average increase in turnover occurred also in other specialised stores, selling mainly computers and their accessories, photography supplies, books, sports equipment, games and toys, flowers, plants, etc. (22%). In June, the turnover of stores selling pharmaceutical goods and cosmetics, which showed a decline in the previous months, resumed growth, increasing 5% compared to the same month of the previous year. After a decline in May, turnover increased also in stores selling textiles, clothing and footwear (6%) and in other non-specialized stores selling predominantly manufactured goods (e.g. department stores) (5%). In June, turnover growth continued also in stores selling household goods and appliances, hardware and building materials (7%) and in stores selling second-hand goods and in non-store retail sale (stalls, markets, direct sale) (2%).

The turnover of grocery stores stayed at the same level compared to June 2016.

The turnover of enterprises engaged in the retail sale of automotive fuel, which showed a decline in April and May, resumed growth in June, increasing 3% compared to June of the previous year.

Compared to the previous month, in June, the turnover of retail trade enterprises increased 2%. According to the seasonally and working-day adjusted data, the growth was 1%. In the six months of 2017 (January–June), the turnover of retail trade enterprises increased 2% compared to the corresponding period of the previous year.Turnover volume index of retail trade enterprises and its trend

The statistics are based on the VAT declaration data of the Estonian Tax and Customs Board. Statistics Estonia published the monthly summary in five working days. For the statistical activity “Economic indicators of trade enterprises”, the main representative of public interest is the Ministry of Economic Affairs and Communications, commissioned by whom Statistics Estonia performs this statistical activity.

Source: Statistics Estonia

e-commerce purchases up by 25 pct in 2.Q

Individuals in Estonia made an average of 1.1 million cashless payments per day in the second quarter of 2017. The number of payments was 7% and the turnover 8% higher than it was at the same time last year.

75% of the cashless payments initiated by individuals were card payments. 819,000 card payments were made daily in the second quarter, 7% of them outside Estonia. Estonian residents used card payments in 184 countries in the second quarter, the most popular being Finland, Latvia, Russia, Sweden, Spain and the UK. People in Estonia are some of the greatest lovers of card payments in Europe, only surpassed by Denmark, the Netherlands, Finland, Sweden and the UK. The average size of a card payment made by an individual in Estonia was 15.4 euros in the second quarter, which is one of the smallest in Europe, probably because Estonia has not set a floor for the size of a card payment. Card payments made abroad were larger and averaged at 26.8 euros.

The daily average number of payment orders made by individuals in the second quarter was 250,000. Half of them were payments through an internet bank, and the other half were e-invoice standing orders and payment orders through a bank link. The number of e-invoice standing orders has not changed since the changeover from direct debits. In 2013, before the changeover to e-invoice standing orders, the average number of direct debits was 54,000 per day. By the second quarter of 2017, it had remained almost the same at 53,000 payments per day. Most payment orders are domestic, only 0.6% are made to foreign banks.

Figures illustrating the use of online stores stand out among other payment methods. Compared to the same time last year, the number of payment orders made through a bank link* has grown by more than 10% (it is now 50,000 payments per day). A bank link can only be used for domestic purchases. Estonian residents are becoming progressively more active in purchasing from foreign online stores. In the second quarter, individuals made 28,000 e-commerce card transactions every day, which is a 46% increase year-on-year. 91% of online purchases made with a card come from foreign online stores. Data from Omniva and Statistics Estonia confirm that Estonian people are ordering online more and more. Statistics Estonia data also show that in April and May, the sales revenue of stores that sell online or by post grew the most, 30% in a year, compared to the 6% sales revenue increase of retail stores. The largest retail chains in Estonia attest to the fact that e-commerce is growing fast, and most chains have opened or are planning to open their online store soon.

* A bank link is a payment method where an online store directs the customer to pay for a purchase in their internet bank using a pre-filled order.

Cashless payments initiated by individuals through Estonian banks in 2017 Q2 (daily average)
number of payments (thous.) incl. cross-border payments turnover of payments (million euros) incl. cross-border payments
Total of the payments made (A+B+F+G) 1 100 7% 45,7 9%
         incl. card payments (A) 819 7% 13,2 11%
         incl. payment orders (B) 250 1% 30,3 7%
                 internet bank payment orders  (C) 123 1% 17,9 7%
                 e-invoice standing orders (D) 53 0% 1,6 0%
                 bank link payment orders (E) 50 0% 1,4 0%
         incl. e-commerce card transactions (F) 28 91% 1,0 93%
         incl. other (G) 3 0% 1,2 0%
E-commerce transactions (E+F) 78 33% 2,4 38%

 

Number of cashless payments made by individuals

Source: Bank of Estonia

Author: Tiina Soosalu, Eesti Pank Payment and Settlement Systems Department