The current account was in deficit in March

The flash estimate1 put the Estonian current account at 62 million euros in deficit in March 2015. Exports of both goods and services were higher than in March last year and imports of goods were also higher, though imports of services were smaller than a year ago. Foreign investment dividends paid and received dominated in incomes.

The current and capital accounts were also negative in March. This means that the Estonian economy was a net borrower from the rest of the world, so the country as a whole received more resources from abroad than it invested there.

Eesti Pank publishes the flash estimate of the balance of payments monthly for the last month but one. From January 2015 Eesti Pank accompanies the publication of the flash estimate with a short comment. The statistics on the first quarter of 2015 will be published with a comment on 9 June.

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 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.

See graph here: Bank of Estonia

Economic growth decelerated as expected

According to the flash estimates of Statistics Estonia, GDP decelerated to 1.2% YoY in the first quarter of 2015. The seasonally and working-day adjusted GDP increased by 1.8% YoY. Compared to the previous quarter, economic growth decreased by 0.3%.

Deceleration of export growth and decrease in investments slowed the economic growth the most. Exports of goods grew by 3% in real terms in the first quarter. Decreased export volumes to Russia had the largest negative impact, but it was partially compensated by the fast growth of electronics exports. Electronic equipment has considerable contribution to the export growth and, in turn, to the economic growth. Unfortunately the orders of electronic equipment have decreased and its export has decelerated this year.

Although export growth has decelerated, the growth of import was even weaker in the first quarter, only 1%. This referred to the continuous decline in investments. In the second half of last year import growth accelerated, but that did not increase investments, which means that a large share of imported goods was used in intermediate consumption.

Private consumption contributed the most to the economic growth, supported by robust growth of real wages and solid consumer confidence. Lower prices of motor fuel helped consumers to save money or spend it on something alternative. Increased receipts of excise taxes and value added tax made a strong contribution to the GDP growth.

We expect Estonian economy to grow by 2.1% in 2015, mainly supported by strong private consumption. Steep decrease in exports to Russia will continue. Meanwhile the companies have increased their exports to other countries – to Sweden, the Netherlands, the US, Poland and Spain. If orders of electronic equipment will not turn to the growth in the coming months, it will have a negative impact both on our exports, as well as, on our economic growth. Although foreign demand will be weaker this year, we are more optimistic than few months ago. The European economy is improving, which gradually gives more opportunities to our exporters. We expect weaker euro to have a positive impact on our competitiveness and exports, but it will only affect about 1/3 of the exports, which is denominated in US dollars. Enterprise investments will remain modest, whereas public sector investments are expected to grow.

Source: Swedbank

Household savings increased more than debts in 2014

Corporate indebtedness and leverage edged upwards slightly in 2014. The increased need for external funds meant that the growth in corporate debt liabilities accelerated somewhat last year to 5%. Domestic debt liabilities increased by 3.3% and borrowing from abroad and issues of bonds abroad increased by 8%. Growth in corporate equity in 2014 slowed in contrast, to 1.3%, as corporate profits declined. As a result reinvested profits declined and there was also a slight decline in the value of shares listed on the stock exchange.

The income and savings of households increased faster in 2014 than their debt liabilities did. Higher incomes helped the cash and deposits of households to increase by 9% while debt liabilities increased by 3% at the same time. Long-term debt liabilities grew by 2.8%, mainly because of the growth in the housing loan stock, while short-term debt liabilities increased by 5%.

The unconsolidated debt liabilities of the general government grew by 186 million euros last year to some 2.2 billion euros. Although the general government budget for 2014 was in surplus, some subsectors of the general government still borrowed additional funds. Debt liabilities also increased by 27 million euros because of Estonia’s participation in the European Financial Stability Facility, the EFSF. The liquid financial assets of the general government in the form of deposits, bonds and listed shares and its credit claims together grew by 180 million euros last year to some 2.8 billion euros.

As domestic saving was again bigger than investment, the Estonian economy as a whole was a net lender in the fourth quarter of 2014 and in the year as a whole, just as in the past five years. This means that more funds were invested abroad or returned there than were taken in from abroad.

Source: Bank of Estonia

Author: Taavi Raudsaar, Economist at Eesti Pank

Inflation in Estonia reflects price developments on global markets

Data from Statistics Estonia show that the consumer price index was 0,6% higher in March than in February. The price level was 0.6% lower compared to March 2014 and consumer prices have been falling for ten consecutive months, year-on-year. Preliminary data indicate that the harmonised consumer price deflation for the euro area was 0.1% in March, which is the smallest price decrease over the past four months.

In the first three months of this year, consumer prices were mostly influenced by major price fluctuations on commodities markets. After a sharp price decrease at the start of 2015, the price of motor fuels went up by a total of 12% in February and March. In addition to the growth of crude oil prices on global markets, the price of motor fuels in monthly terms was pushed up by the simultaneous depreciation of the euro. Motor fuels were, however, 11% cheaper than a year earlier and this is probably the reason behind the price drop of many transport services in March.

At the same time, the euro was 4.3% lower against the dollar than in February, but compared to the peak of 2008, the euro is now approximately 30% cheaper. The depreciation of the euro should cause a pick-up in inflation, but so far, the impact on inflation has been small. The influence of exchange rate fluctuations on consumer prices is limited because of the large share of other euro area countries in Estonian foreign trade: about a fifth of the cost of imported goods are open to exchange rate changes. Capital goods and the intermediate consumption of companies are imported more often on the basis of contracts in foreign currency, and the price changes of such goods are passed into consumer prices over a longer period of time. Such transactions make up around 12% of consumer goods imports. However, the depreciation of the euro against the dollar has been offset by the appreciation of the euro against the rouble, which has made imports from Russia cheaper.

Most food prices were lower in March compared to the year before, but alcohol prices grew due to a rise in excise rates. The fall in food prices was influenced by global markets: the price index of the Food and Agriculture Organisation, which reflects prices on global markets, was about 18% lower in March than a year earlier. Food prices have been falling since early 2014, both because of an increase in inventories and good harvests. However, the impact of Russian sanctions has become greater and led to lower prices for milk and meat products on the internal market of the European Union.

Eesti Pank estimates that the cost of the consumer basket price in 2015 will remain on the same level as last year. The fall in consumer prices is likely to continue over the coming months. Price increases may still be expected in the second half of the year, as domestic inflation is growing and the fall in energy prices is decreasing.

Estonian CPI inflation

Largest contributions to CPI inflation


Source: Bank of Estonia

Author: Rasmus Kattai, economist at Eesti Pank

The current account was in surplus in January

The flash estimate put the Estonian current account at 55 million euros in surplus in January 2015. Exports of both goods and services were up on a year earlier, but import volumes were smaller than in January 2014. The smallest deficit on the goods account in recent years and an increased surplus in services turned the current account balance to surplus.

The total balance of the current and capital accounts was also positive. This means that the Estonian economy was a net lender to the rest of the world at the start of this year, so  all the economic sectors of the economy taken together invested more resources abroad than they received from there.

See more on the Bank of Estonia website

Modest growth of sales expected in 2015

• Profitability stable despite stagnant turnover
• Investment volumes a bit larger outside the energy sector
• Modest growth of sales expected in 2015

Profitability stable despite stagnant turnover
In 2014, enterprises’ turnover and costs in Estonia stayed at the previous year’s level. While the level of total costs did not change, labour costs increased; therefore, the share of personnel expenses to total costs rose from 12% in 2013 to 13% in 2014. Despite no change in turnover, total profits grew by 3%. Profitability, measured as the ratio of total profits to turnover, has been at the same level for three years.

Investment volumes a bit larger outside the energy sector
Business sector investments increased by 2%, excluding the energy sector. Compared with 2013, investments in land, acquisition of buildings, and computers increased. Other investments decreased, with the biggest decline registered in investments in equipment and machinery, due to smaller investment volumes in the energy sector.

Modest growth of sales expected in 2015
The growth of sales and profits will probably remain limited this year. Sentiment indicators have worsened in recent months. Operating capacity in the manufacturing sector hit the seasonal average of recent years in January, but the volume of orders has been declining during the last few months. Exports to Russia have been hit, but the volume of total exports of goods was still growing, at least in January. According to the recent Swedbank survey of Estonia’s manufacturing sector, 64% of polled industrial enterprises planned to increase their turnover (by 3.0%, on average), and 44% of companies expected an increase in their profitability in 2015.

Source: Swedbank

Read more from here

The Estonian economy grew 2.1% in 2014

According to Statistics Estonia, the gross domestic product (GDP) of Estonia in 2014 increased 2.1% compared to 2013. In the 4th quarter of 2014, the Estonian economy grew 3.0% compared to the 4th quarter of 2013.


In 2014, the GDP at current prices was 19.5 billion euros.

The year was characterised by a slow but steady growth of the Estonian economy. In the 1st quarter the GDP grew 0.5% compared to the 1st quarter of 2013, while in the 4th quarter the year-over-year growth was 3.0%. In total, the Estonian GDP rose 2.1% in 2014.

Trade contributed significantly to the increase in the GDP, mainly due to an increase in value added in retail trade. In addition, manufacturing and professional, scientific and technical activities contributed the most to the GDP growth in 2014. Manufacturing increased mainly due to a growth in the exports of production; there was also an increase in the domestic sales of manufacturing production.

In 2014, the decrease in value added in transportation and storage slowed the Estonian economy down the most. The decline in construction and accommodation and food service activities had a big negative effect on the GDP as well. The construction volumes on the domestic construction market decreased 2%. The value added of construction decreased 4.1% mainly due to a decrease in the construction of structures.

In 2014, the GDP grew faster than the number of hours worked and persons employed (which grew 0.4% and 0.8%, respectively). Therefore, labour productivity per employee and hour worked increased by 1.3% and 1.7%, respectively. At the same time, the labour costs related to GDP production have increased. Unit labour cost grew 6.4% compared to 2013.

Domestic demand grew 4.8%, mainly as a result of changes in inventories and an increase in household final consumption expenditures. There was an increase in all types of inventories, but the increase in the inventories of goods contributed the most to the changes in inventories. The increase in household final consumption expenditures was mostly caused by a growth in the expenditures on food, transport and clothing and footwear.

Real gross fixed capital formation fell 3%, primarily due to a decrease in investments in buildings and structures and in other machinery and equipment. The main positive factor was the growth of investments in transport. Although domestic demand grew faster than the GDP, the total final consumption expenditures, gross fixed capital formation and changes in inventories were smaller than the GDP by output method. The share of domestic demand in the GDP was 99.4%.

In 2014, the real export of goods and services grew 2.6% compared to 2013 in spite of the decrease in the 1st quarter. The import of goods and services increased 2.3% in 2014. The increased export and import of electronic products had the biggest positive impact on Estonian foreign trade.

Net export, i.e. the difference between export and import, was positive in 2014. The share of net export in the GDP was 2.5%, which was higher than in the two previous years.

4th quarter of 2014

The GDP at current prices was 5.1 billion euros in the 4th quarter of 2014. In that quarter, the seasonally and working-day adjusted GDP increased by 1.2% compared to the 3rd quarter of 2014 and by 2.9% compared to the 4th quarter of 2013.

Similarly to the 3rd quarter, the GDP in the 4th quarter of 2014 was driven the most by a rise in manufacturing, Estonia’s biggest economic activity, mainly due to the production of electronic, coke and wood products. Furthermore, the value added in energy and trade also provided important support for economic growth. The increase in value added in trade was supported by the growth of sales by retail trade enterprises.

In the 4th quarter of 2014, the value added of transportation increased at current prices. However, in real terms, transport slowed the Estonian economy down the most. In addition, the decline in the value added of real estate activities and health had a considerable negative effect on the GDP in the 4th quarter.

Domestic demand grew 5.0% in real terms, mainly due to changes in inventories and an increase in household final consumption expenditures. In the 4th quarter, the change in inventories was mainly caused by a growth in the inventories of finished goods. Household final consumption expenditures increased 5.7% at real prices. In the 4th quarter, the decrease in gross fixed capital formation, which began already in the 3rd quarter, continued. The 7% decrease in gross fixed capital formation at real prices was mostly influenced by a decrease in general government investments in buildings and structures, in other machinery and equipment and in military equipment. There was also a decrease in investments in other machinery and equipment made by the sector of non-financial corporations. In the last quarter of 2014, the real export of goods and services increased 6.0% compared to the same quarter of the previous year. At the same time, the real import of goods and services grew 5.9%. Trade was influenced the most by an increase in the export and import of electronic equipment. The share of net export in the GDP was 2.8%.

Diagram: Real growth of GDP and gross fixed capital formation

Statistics Estonia harmonised its revision policy of national accounts estimates with Eesti Pank. The table outlines the correction depth of periods to be revised in 2015.

1st quarter 2015 2nd quarter 2015 3rd quarter 2015 4th quarter 2015
Revision range Max. three quarters Max. one quarter Max. 17 quarters Max. one quarter
Publishing date 11 March 2015 9 June 2015 8 September 2015 9 December 2015
Published period 4th quarter 2014 1st quarter 2015 2nd quarter 2015 3rd quarter 2015
Revised period 1st quarter 2014 up to 3rd quarter 2014, if necessary 4th quarter 2014, if necessary 1st quarter 2011 up to 1st quarter 2015 2nd quarter 2015, if necessary

Compared to the indicators published in December 2014, GDP real growth has been revised upwards by 0.2 percentage points in the 1st quarter, by 0.4 percentage points in the 2nd quarter and by 0.2 percentage points in the 3rd quarter.

Source: Statistics Estonia


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