17 pct more housing and 57 pct more car loans

  • Companies took out 11% more in long-term loans in January than a year earlier
  • Demand from households for loans remains strong
  • The growth in car leases to households is boosted further by the effect of tax changes
  • While borrowing increased strongly, bank deposits were also up over the year by 10%

Estonian companies borrowed actively in January 2018 from banks and lease companies operating in Estonia, like at the end of the previous year. Investment by companies in fixed assets has increased and this is mirrored in an increase in borrowing activity. The 198 million euros of new long-term loans and leases was 11% more than was issued in the same month a year earlier. Companies in almost all sectors took out more long-term loans than a year previously. The portfolio of corporate bank loans was smaller than a year earlier however, as one bank transferred a part of its loans to the portfolio of its foreign parent bank in the autumn. Without this the portfolio of corporate loans, leases and factoring would have grown by 6-7% over the year.

The borrowing activity of households also remained strong in January. New housing loans worth 93 million euros were issued, which was 17% more than in the same month a year earlier. The portfolio increased by 6.7% over the year. New car lease agreements were signed at a particularly fast rate, and their value was 57% more in January than a year previously. The portfolio of car leases grew by 17%. Car leases to households have been affected in recent months not only by the rapid growth in incomes, but also by the change that came in from the start of 2018 to the taxation of vehicles owned by companies, which has affected the lease agreements on company cars and led private individuals to take them over. A little more was taken in overdrafts and credit card loans than a year earlier, and the stock of such loans increased by 2.2% over the year.

The average interest rates on new loans rose a little in January. The average rate on new housing loans fell in the last quarter of last year, but rose again in January to 2.4%, which is more or less the same level as in the middle of last year. The average interest rate on new long-term corporate loans rose to 2.7% in January. The average interest rate largely depends on which companies have signed which loan contracts for which projects in the particular period. Tight competition between banks has led interest margins on loans to large companies to fall in recent years, and at times this has also substantially affected the average interest margin. There has however been no noticeable general fall in the interest margins for companies.

As companies and households have borrowed extensively, so financial buffers have also continued to increase. Corporate deposits in banks operating in Estonia declined a little in January to 6 billion euros, but they increased strongly by around 10% over the year. The growth in household bank deposits is affected by the relatively rapid growth in incomes. Household deposits were up 9.7% over the year in January at 6.9 billion euros.

While borrowing increased strongly, bank deposits were also up over the year by 10%

See graphs here

Author: Mari Tamm, Economist at Eesti Pank

Source: Bank of Estonia

Estonian labour force participation rate is 72 pct

According to Statistics Estonia, in 2017, the unemployment rate was 5.8%, the employment rate 67.5% and the labour force participation rate 71.6%. In the 2nd quarter, unemployment increased temporarily, primarily due to an increased number of previously inactive persons entering the labour market. Employment and labour force participation remained high throughout 2017, reaching the highest levels in 20 years. In the 4th quarter, the youth (15–24-year-olds) unemployment rate was very low – 6.2%.

Labour market indicators improved throughout the most of 2017, and, in quarterly comparison, were mostly more positive than the respective indicators of the previous year. Although in Estonia, the total number of working-age persons (15–74-year-olds) is falling, the number of persons active in the labour market (the sum of employed and unemployed persons) increased by 7,000 persons, and was estimated at 699,000. The labour force participation rate increased by 1.2 and the employment rate by 1.9 percentage points. The unemployment rate decreased by 1 percentage point. The number of inactive persons continued to decline. The annual average number of inactive persons was 277,000, which is 13,500 persons less than in 2016. The number of employed persons has increased due to a fall in unemployment as well as an increase in the number of previously inactive persons entering the labour market.

In 2017, the estimated annual average number of unemployed persons was 40,000. The unemployment rate was 5.8%, which is 1 percentage point lower than in 2016. The number of unemployed persons decreased by 6,400, while 13,500 previously inactive persons entered the labour market. The unemployment rate in the 4th quarter was 5.3% and the estimated number of unemployed persons 37,000. This is respectively 1.3 percentage points and 8,000 unemployed persons less than in the 4th quarter of 2016. Based on the indicator for 2017, Estonia rather ranks among the European Union countries with lower unemployment.

The unemployed at the greatest risk of poverty are the long-term unemployed, i.e. those who have been seeking work for more than 12 months. In 2017, there were 1,300 fewer persons who had been unemployed for a long time. Also the number of persons who had been unemployed for a short time and the number of discouraged persons, i.e. persons who had lost hope of finding a job, were smaller.

In 2017, the number of inactive persons in the labour market (students, pensioners, homemakers, etc.) among the 15–74-year-olds amounted to 28%. The number of inactive persons decreased primarily due to an increase in the number of those who were inactive due to ongoing studies, pregnancy, maternity or parental leave, or retirement age. There were on average 1,000 fewer persons inactive due to illness or injury than in 2016. The labour force participation rate for older persons (50–74-year-olds) in 2017 was 60.5%, the employment rate 57% and the unemployment rate 5.2%.

The biggest change in the number of inactive persons occurred in the 2nd quarter of 2017, when the number of inactive persons fell by 17,000 persons compared to the preceding quarter. The number of inactive students in the labour market decreased by 7,200 persons and the number of persons inactive due to illness or injury by 5,700 persons. As a result, the unemployment rate increased temporarily by 1.4 percentage points.

Significant differences in labour market indicators by place of residence, sex and ethnic nationality still exist. In 2017, the highest employment rate was recorded in Harju county (74.2%). The difference with Ida-Viru county, where the lowest employment rate was recorded (53.9%), was over 20 percentage points. In addition to better job opportunities, different age structure also had an impact on the results. In 2017, compared to 2016, the employment rate for both men and women increased, but the rate for men remained 8 percentage points higher than that for women (71.6% and 63.6%, respectively). The unemployment rate for men (6.2%) exceeds the unemployment rate for women by 0.9 percentage points. In 2017, the unemployment rate for Estonians was 4.4% and for non-Estonians 8.8%.

The average number of young people (15–24-year-olds) seeking work in 2017 amounted to 7,000. The annual average labour force participation rate for the young was 45.2% and the unemployment rate 12.1% (in 2016, the respective figures were 42.4% and 13.4%). The unemployment rate is the share of the unemployed in the persons active in the labour market, i.e. in those who work or are seeking work. Compared to the 4th quarter of 2016, the number of unemployed young people and that of inactive persons fell at the end of the year. The decrease in the number of inactive persons is partly due to a decrease in the total number of youngsters. The youth unemployment rate dropped to 6.2%, which is an extremely low level for that age group (in the 4th quarter of 2016, it stood at 12.7%). This is the lowest youth unemployment rate in 20 years, i.e. even lower than in the 4th quarter of 2007.

The labour force participation rate for 20–64-year-olds – one of the indicators in the Europe 2020 strategy, according to which, the aim of Estonia is 76% – was 78.5% in 2017. The target level for Estonia was reached already in 2015.

Employment rate and unemployment rate by age group, 2008–2017

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 employment gap is the difference between employment rates in percentage points. 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

Construction volume increased by 23 pct

According to the preliminary data of Statistics Estonia, in 2017, the total production of Estonian construction enterprises in Estonia and in foreign countries amounted to 2.5 billion euros, which was 18% more than in 2016. Taking into account only Estonian construction market, construction volume increased 23%. Construction volume increased for the second consecutive year.

The production value of building construction was 1.6 billion euros and the production of civil engineering works totalled 846 million euros. Compared to 2016, the volume of building construction increased 14% and the volume of civil engineering more than a fourth.

Building construction contributed the most to the growth of the domestic construction market. Compared to 2016, construction volume increased in new building construction as well as in repair and reconstruction work. The growth was supported also by civil engineering, which resumed growth at the beginning of last year.

The construction volume of Estonian construction enterprises in foreign countries decreased 21% compared to 2016. The construction of buildings as well as civil engineering decreased. Construction volumes in foreign countries accounted for 8% of the total volume of construction in 2017 (11% in 2016).

New dwelling construction continued its growth trend for the sixth year. According to the data of the Register of Construction Works, in 2017, the number of dwelling completions was 5,890, which is 1,158 dwellings more than the year before. As in previous years, the largest share of completed dwellings was in blocks of flats situated in Tallinn, in the vicinity of Tallinn and in Tartu county. The majority of completed dwellings had two or four rooms. The floor area of completed dwellings was 92 square metres on average.

There is still demand for new high-quality dwellings in a good location. In 2017, building permits were granted for the construction of 7,877 dwellings, which is about a third more than in 2016. The most popular type of residential building was a block of flats.

In 2017, the number of completed non-residential buildings was 1,251, with a useful floor area of 804,000 square metres – these were primarily new storage and industrial premises and offices. Compared to 2016, the useful floor area as well as the cubic capacity of completed non-residential buildings increased.

In the 4th quarter of 2017, the production value of construction amounted to 680 million euros, which was 16% more than in the 4th quarter of 2016. The volumes of building construction as well as civil engineering increased.

Construction volume index, 2000–2017 (2010 = 100)

The statistics are based on the questionnaire “Economic activity, quarter”, the submission date of which was 21 January 2018. Statistics Estonia published the quarterly summary in 25 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

3 times more dwellings compared to 100y ago

According to Statistics Estonia, on 1 January 2017, there were 706,000 dwellings in Estonia, of which 76% were occupied. Compared to 1922 when there were 252,000 dwellings in Estonia, the number has nearly tripled.

Occupied dwellings numbered 537,000, of which three-quarters were under 80 m2 and a third were in the range 60–80 m2. Of occupied dwellings, those with 2 and 3 rooms had the largest shares, 32% and 30%, respectively.

93% of occupied dwellings had piped water. 88% had a flush toilet, 84% had a bath or shower and 70% had central heating. 68% of occupied dwellings had all four amenities.

69,000 dwellings, i.e. 10% of existing dwellings, have been constructed in Estonia since 2001. A higher than Estonian average share of new dwellings is in Harju, Tartu and Pärnu counties.Dwellings constructed since 2001, 1 January 2017

In 2018, Statistics Estonia publishes housing data for the first time based on the data of Estonian registers. The used methodology has been developed as part of the preparation for the 2020/2021 Register-Based Population and Housing Census.

The population of dwellings is based on the data of three registers: the Address Data System, the Population Register and the Register of Construction Works. Technical data are from the Register of Construction Works, and when necessary, have been supplemented with the data of the 2011 Population and Housing Census.

For the statistical activity “Housing”, 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 labour market remains favourable for employees

  • The labour market favoured employees very much in the fourth quarter of 2017
  • The unemployment rate was 5.3%
  • Labour shortages have deepened for companies
  • Companies that cannot improve productivity or raise wages are losing competitiveness as employers

The Estonian labour force survey shows that the number of people in employment was 4.6% higher in the fourth quarter of 2017 than a year earlier and the number of employees was 4% higher. This is probably not due to any sharp acceleration in the growth in employment at the end of the year as the Tax and Customs Board reports that the number receiving a declared wage was up by 1.3% over the year in the same quarter. The Labour Force Survey estimates can be quite volatile from quarter to quarter. The full-year data in the Labour Force Survey found the number of waged employees grew 1.3%, which is about the same as in the data from the Tax and Customs Board, where it was 1.1%.

Last year was a good year for the labour market in Estonia. The participation of working age people in the labour market increased to 71.6%, while the unemployment rate fell to 5.8%. Unemployment was notably higher in the European Union on average at 7.7% than in Estonia. The share of people of working age participating in the labour market was smaller in the European Union at 65% than it was in Estonia.

Estonian employers are still concerned about labour shortages. The share of companies that consider labour shortages to be a factor impeding growth in production increased in the fourth quarter. At the same time companies were more optimistic about future increases in employment than they were in previous years. Labour shortages and higher consumer price inflation boosted the growth in wages in the second half of the year as the average wage declared to the Tax and Customs Board was up 8.5% in the fourth quarter.

Labour shortages are a consequence of the favourable position of the economic cycle, and this is amplified by the decline in the working age population. Employment has climbed in the decade since the major economic crisis and has added more than 90,000 people from its low point. If the external environment remains stable, the economy will probably adjust smoothly to the shortage of labour. Employees will leave jobs with low value added and low wages and it will not be possible to find new employees to replace them. Companies that cannot improve productivity or raise wages will disappear. This will be partly offset by Estonia becoming a more attractive destination for immigrants and returning emigrants, and by people’s health letting them remain longer in the labour market.

Author: Orsolya Soosaar, Economist at Eesti Pank

Source: Bank of Estonia

The current account surplus was boosted by services in November 2017

The flash estimate1 put the Estonian current account at 53 million euros in surplus in November 2017. The surplus on the goods and services account was 97 million euros, which was 12 million euros more than a year earlier. Goods exports were up by 8% over the year and imports by 10%, and so the deficit on the goods account increased by 20 million euros over the year to 55 million euros. The surplus on the services account was 33 million euros larger than a year earlier at 152 million euros as services exports grew by 12% and imports by 7%. The net outflow of investment income and current transfers, or the primary and secondary income accounts, was the same as a year earlier at 44 million euros.

The current and capital accounts were in surplus by a total of 87 million euros, meaning that the Estonian economy was a net lender to the rest of the world, so the country as a whole invested more financial assets abroad than it received from there.

1 The quarterly balance of payments is compiled from a combined system of representative primary data sources, including surveys of companies, while the monthly balance of payments draws from a considerably smaller database. Although the monthly report uses as much of the data available for the month reported as possible, including administrative data sources and reports on international payments, it is subjective to a certain degree, which is why it is called an estimate. Once the quarterly balance of payments is released, the monthly balances of payments are adjusted accordingly. For more on the principles used in compiling the flash estimate, see http://statistika.eestipank.ee/failid/mbo/kiir_mb_eng.html

Source: Bank of Estonia

Construction price index increased last year

According to Statistics Estonia, in 2017, the construction price index increased 1.5% compared to the average of 2016.

Compared to 2016, the cost of labour increased 2.4%, use of machinery by 1.4% and materials by 1.0%.

In the 4th quarter of 2017, compared to the 3rd quarter, the change of the construction price index was 0.5%, and compared to the 4th quarter of 2016, it was 2.1%. Compared to the 3rd quarter of 2017, the index was mainly influenced by an increase in labour costs, which accounted for 96% of the change on previous quarter. Compared to the 4th quarter of 2016, the increase in labour costs accounted for more than three quarters of the rise of the index.

The repair and reconstruction work price index also rose by 1.5% in 2017 compared to the average of 2016, including a 1.7% increase in both labour costs and use of machinery, and 1.3% increase in prices of materials.

The change of the repair and reconstruction work price index in the 4th quarter of 2017 was 0.4% compared to the 3rd quarter, and 1.7% compared to the 4th quarter of 2016.

The calculation of the construction price index covers four groups of buildings: detached houses, blocks of flats, industrial buildings and office buildings. The repair and reconstruction work price index covers office buildings. The construction price index expresses the change in construction expenditures taking into consideration the price changes of three basic inputs: labour force, building materials and building machines.

Change in the construction price index, 4th quarter 2017
3rd quarter 2017 – 4th quarter 2017, % 4th quarter 2016 – 4th quarter 2017, %
TOTAL 0.5 2.1
labour force 1.5 4.5
building machines 0.2 1.9
building materials 0.0 0.7
Index of detached houses 0.6 1.9
Index of blocks of flats 0.9 1.8
Index of industrial buildings 0.3 1.9
Index of office buildings 0.5 2.2
Change in the repair and reconstruction work price index, 4th quarter 2017
3rd quarter 2017 – 4th quarter 2017, % 4th quarter 2016 – 4th quarter 2017, %
TOTAL 0.4 1.7
labour force 1.2 3.2
building machines -1.7 0.9
building materials 0.0 0.8

For the statistical activity “Construction price index”, 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 this statistical activity.

Source: Statistics Estonia