Estonian economy grew 1.1% in the 3rd quarter

According to the flash estimates of Statistics Estonia, the gross domestic product (GDP) of Estonia increased 1.1% in the 3rd quarter of 2016 compared to the 3rd quarter of the previous year.

In the 3rd quarter of 2016, the seasonally and working-day adjusted GDP increased by 0.2% compared to the 2nd quarter and by 1.3% compared to the 3rd quarter of 2015.

Real GDP growth was positively influenced by net taxes on products. Although at current prices the receipts of alcohol excise duty decreased, compared to the 3rd quarter of the previous year there were increased receipts of both value added tax and the remaining excise duties. At the same time, payments of subsidies grew.

After having declined in the previous four quarters, the industrial sector’s value added grew more than 4%. The fastest growth took place in the production of energy. In the 3rd quarter, both the export and import of goods grew in real terms compared to the same quarter of the previous year. An increase in the export of electronic products and electrical equipment was the main contributor to the growth of export.Diagram: GDP, real growth of the export of goods and value added in the industrial sector

The industrial sector includes the following economic activities: mining and quarrying; manufacturing; electricity, gas and water supply; and construction.

The flash estimate of economic growth is calculated only by the production approach using VAT return information from the Estonian Tax and Customs Board and data from various statistical actions of Statistics Estonia which have been obtained by the time of preparing the estimate. Therefore, the flash estimate may differ from the revised estimates of the GDP, which are based on the respective quarterly data and calculated by the expenditure, production and income approaches.

Source: Statistics Estonia

Economic growth in Estonia weak in the 3Q

Economic growth in Estonia continued to be weak in the 3Q. According to the flash estimate, Estonian economy grew 1.1% yoy and 0.2% qoq (seasonally and calendar adjusted). The GDP has increased 1.1% yoy during the first three quarters. We shall probably revise slightly down our GDP forecast made in August. 

Despite this meagre growth, industrial sector value added reached to the growth in the 3Q, after a year of decline, value added growth in manufacturing accelerated and energy production showed a robust volume growth, as well. According to the flash estimates, value added in transport and ITC sectors and in wholesale and retail trade increased. Although, private consumption is expected to slow gradually, retail trade growth is still strong. GDP growth was inhibited by the poor harvest in agricultural sector and the decrease in the number of employees in public sector that reduced value added in public administration.

Although the foreign trade statistics and export turnover in manufacturing showed accelerated growth of export of goods, the same indicator, after certain adjustments, in GDP slowed down compared to the second quarter. The growth of import of goods decelerated, as well.

All economic sentiment indicators have gradually improved in Estonia. The growth of corporations’ credit portfolio has accelerated this year, which refers to the improved investment activity among enterprises. Households credit portfolio and investments in dwellings have increased with the moderate pace, as well. Investment growth is restrained by government sector, who has used only a small amount of money from the EU structural funds allocated for Estonia for the period in 2014-2020.

Many of these indicators refer to the gradual improvement of economic situation in Estonia. In addition, job vacancies have increased and nominal growth of wages is robust.

Although we expect the deceleration of economic and import growth in Sweden, UK and Germany, the average import demand of the major export partners for Estonia is expected to improve in 2017. This is expected to offer more export possibilities for Estonian enterprises. In addition, we expect that government will increase the payments from the EU funds in next year and will contribute positively to the investment growth. Producer and export prices are increasing and this is expected to improve enterprises turnover, including export turnover. At the same time, negative risks in the global economy and trade are substantial. Estonia’s new government, currently under formation, will likely bring about changes in economic policy, but before the coalition agreement has been put in place, it’s too early to assess these impact on the Estonian economy.

Source: Swedbank

An Estonian household member spends an average of 395 euros per month

According to Statistics Estonia, in 2015, a household member spent an average of 395 euros per month – 106 euros more than in 2012. At the same time, there has been a decrease in the share of compulsory expenditure in the household budget.

According to the Household Budget Survey, in 2015, compulsory expenditure on food and dwelling accounted for 40% of the household budget or 157 euros. According to the previous survey, held in 2012, a household member spent 289 euros per month, of which compulsory expenditure amounted to 45% or 130 euros. Expenditures on food and dwelling are unavoidable in the household budget, i.e. compulsory expenditure, and the decrease of their share in total expenditure shows a rise in the level of well-being because there is more money and possibilities left for other expenditures (e.g. expenditures on recreation, incl. culture and travelling).

In 2015, a household member spent the most on food (92 euros per month), which accounted for 23% of the total expenditure. Expenditure on dwelling was 65 euros, on transport 51 euros, on leisure time 42 euros, on housekeeping 26 euros, on clothing and footwear 21 euros and on communication services (Internet, phone and mail services) 18 euros per month per household member.

Households in urban areas spent more money on dwellings than households in rural areas, expenditure per household member amounted to 69 and 56 euros per month, respectively. Expenditure on leisure time was also bigger in urban households than in rural households (respectively 46 and 35 euros per month per household member). Rural households spent more on transport: while in rural settlements 55 euros were spent per month per household member, then in urban settlements – 49 euros.

By county, the expenditures of households of Harju county were the biggest (449 euros per month per household member) and the smallest expenditures were recorded in the households of Ida-Viru county (279 euros per month per household member).

The estimates are calculated according to the data of the Household Budget Survey conducted in 2015. The most recent comparable data are from 2012, in interim years the survey was not conducted. In 2015, about 3,400 households participated in the survey. 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. In 2015, a little over 581,000 households lived in Estonia and the average size of a household was 2.2 persons.

Mortgage payments, real estate purchases, financial investments, expenses on major repairs or construction and other investments are not taken into account as household consumption expenditure.

Source: Statistics Estonia

Estonian Economy and Monetary Policy 3/2016

The Estonian Economy and Monetary Policy is an Eesti Pank review released four times a year that summarises the main recent events in the global and Estonian economies. Twice a year, in June and December, the review also contains the forecast for the Estonian economy for the current year and the next two calendar years. Here is a short summery of the report.

The economy of the European Union and that of the euro area have been moving in the direction of more certain growth in recent years, though growth in the second quarter was again slower than in previous quarters and uncertainty about the future was increased by the referendum in the United Kingdom in June, in which the voters chose to leave the European Union.

Revised data put growth in the Estonian economy at 0.8% in the second quarter, leaving it below its long-term potential.

Although the unit labour cost based real effective exchange rate of the euro has appreciated for Estonia, exporting companies consider their competitiveness in the European Union market and further afield to be stronger than in the beginning of the year

Having fallen for more than two years, prices rose in August and took consumer price inflation back into positive territory.

Strong growth in wage income and consumption has boosted tax revenues. Tax revenues have also been raised by higher excise rates for alcohol, tobacco and fuels.

The main development in commodities markets in the second quarter was the drop in the oil price. It remains higher than it was at the end of last year though.

The euro area economy grew in the second quarter by 0.3% and by 1.6% over the year.

Increasing employment and low energy prices boosted purchasing power and so private consumption, which was again the main factor driving economic growth in the first quarter.

The contribution of investment to economic growth remained positive in the first half of this year, but growth in investment slowed in the second quarter.

Inflation remained close to zero in the euro area in the first half of the year.

Read more from Bank of Estonia website

Increased investment indicates that economic growth may accelerate

  • Certain individual sectors were the cause of slower growth in the economy in the second quarter
  • Increased investment activity of companies in the first half of the year indicates that economic growth may pick up
  • The share of labour-intensive sectors in the economy is increasing, and upwards pressure on labour costs remains strong
  • Consumer prices were at the same level in August as at the start of 2013, but inflation will rise in the months ahead

Yearly growth in the Estonian economy remained slow in the second quarter. Growth was weakened by a fall in value added in the energy and mining sectors and in real estate activities, but it was broad-based across the other sectors. Growth was led by more labour-intensive sectors and that explains at least partially why the number of people in employment and the average wage have increased even as overall figures for economic growth have been low. The increase in unfilled positions also shows that the upwards pressure on domestic wages caused by labour shortages has probably not yet faded.

Exporting companies considered their own competitiveness in both the European Union market and elsewhere to be better than in the beginning of the year. This is in line with a revitalisation of Estonian trade in the second quarter. Investments in fixed assets also increased in the second quarter. Investments by households in housing increased, and so did corporate investment, making it more likely that the persistent gap of recent years between economic growth and wage growth will be closed through increased labour productivity rather than through a sharp braking of wage growth.

Having fallen for more than two years, prices rose in August and took consumer price inflation back into positive territory. However, the price level has been rising steadily on a monthly basis since the start of the year, and in a little over half a year consumer prices have climbed by around 2%. Price pressures have remained weak despite rapidly rising wage costs and increasing demand. This is partly because profit margins have been slimmed, and partly because the oil price has been low and prices have risen only slowly for imported commodities. The impact on inflation of cheaper energy is fading out, and that will boost inflation in the near future.

The consequence of the fall in prices in the meantime was that consumer prices were at a similar level in August this year to where they were at the start of 2013. During this time the average gross wage increased by 20% however, meaning that the average purchasing power of residents increased by about one fifth in three years, which has resulted in fast growth in retail sales and in private consumption.

Strong growth in wage income and consumption has boosted tax revenues. Tax revenues have also been raised by higher excise rates for alcohol, tobacco and fuels. In the first half of the year, general government income exceeded expenditure and for the year as a whole the budget should remain in surplus. Growth in general government spending has been seriously limited by a reduction in investment, but the cut in the numbers employed by government institutions in an effort to keep the size of the public sector the same relative to a shrinking population has also had an impact.

Source: Bank of Estonia

Estonia’s balance of payments for 2015

The euro area economy as a whole grew faster in 2015 than in the preceding years, and by the end of the year total output had reached about the same level as before the crisis. Economic growth in Estonia unfortunately slowed and was the slowest of the past six years, remaining below the long-term potential of the country. The slowdown was mainly due to the weak economic climate in several neighbouring countries and the restricted ability to export that followed from that. This left growth largely based on increased domestic consumption while both exports and corporate investment declined.

Read more from Bank of Estonia website

Estonian economy grew in the 2nd quarter

According to the second estimates of Statistics Estonia, the gross domestic product (GDP) of Estonia increased 0.8% in the 2nd quarter of 2016 compared to the 2nd quarter of the previous year.

In the 2nd quarter, the GDP at current prices was 5.3 billion euros. The seasonally and working-day adjusted GDP increased by 0.5% compared to the 1st quarter of 2016 and by 0.6% compared to the 2nd quarter of 2015.

According to the second estimates, GDP growth was inhibited the most by a decrease in value added in the energy sector, mining and quarrying and real estate activities. In the energy sector, production of all types of energy fell. The decrease in the value added of mining and quarrying was caused by a fall in the extraction of oil-shale. Although the value added of real estate activities increased at current prices, the increase in prices in this economic activity resulted in a decrease in the value added at constant prices.

In the 2nd quarter of 2016, GDP growth was influenced the most by information and communication, the value added of which rose mainly due to the rapid growth in the value added of computer programming and information service activities. I addition, the biggest contributor to GDP growth were agriculture, forestry and fishing, and trade. Among trade activities, retail trade contributed the most to GDP growth and the value added of wholesale increased as well.

Also, the value added of manufacturing (the biggest economic activity in Estonian economy) contributed to the increase of GDP. In the 2nd quarter, value added increased in more than half of manufacturing activities. The main contributors to the growth of manufacturing were the manufacture of electrical equipment, textiles and wearing apparel. At the same time, the manufacture of fabricated metal products, electronic products and mineral products decreased.

The export of goods and services rose by 4.1% at real prices, mainly due to an increase in the import of electronic products, electrical equipment and wood and articles of wood. Total import increased by 8.8% at real prices compared to the 2nd quarter of the previous year. This is the biggest growth of the last 14 quarters. Import of goods and services was increased the most by a growth in the import of electronic products, motor vehicles and base metals.

In the 2nd quarter of 2016, net export amounted 3.8% of the GDP.

Real GDP grew slower than the number of persons employed and hours worked (respectively 2.0% and 2.9%), meaning that there was a fall in the productivity of the total economy per person employed as well as per hour. Compensation per employee grew faster than productivity and unit labour costs increased 6.4% compared to the same quarter of the previous year.

Domestic demand rose. At real prices, all components of domestic demand increased, except for the final consumption expenditures of government sector. Households’ final consumption expenditure increased by 3.0%. The expenditures on transport, food and recreation increased the most.

In the 2nd quarter of 2016, after having declined in the last 8 quarters, gross fixed capital formation increased by 5.4% at real prices. Households’ investments in dwellings as well as the gross fixed capital formation of non-financial enterprises in buildings and structures and machinery and equipment increased the most. At the same time, gross fixed capital formation of the government sector decreased.

Diagram: Contribution of economic activity to GDP growth, 2nd quarter 2016

As part of a regular revision, Statistics Estonia revised the national accounts data for 2012–2015 based on the supply and use tables and annual reports of enterprises. In conjunction with the publication of the estimates for the 2nd quarter of 2016, the estimates for the 1st quarter of 2016 were also revised. Additionally, data for 2010 were revised.

Source: Statistics Estonia
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