The listed Estonian media holding AS Ekspress Grupp has decided to terminate the activity of its Delfi subsidiary in Ukraine from March 1, 2014.
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Initial data from Statistics Estonia show that the Estonian economy did not grow year-on-year in the fourth quarter of 2013, and shrank 0.1% quarter-on-quarter. In 2013 as a whole, the economy grew by 0.7%, which is less than Eesti Pank had forecast.
A major role in the slow growth of the fourth quarter was played by the energy sector. Heat production volumes were one sixth smaller than a year earlier due to the unusually warm weather. Although this brings down growth in the GDP calculation, lower heating costs eased the pressure on the budgets of households and companies in the short term. At the same time, households were bolder in their consumption decisions and they not only made unavoidable purchases at the end of last year, but also bought increasing amounts of durable goods.
However, faster economic growth needs to be accompanied by investment, as sustainable growth should be based on capital growth. Investment in new production capacity is not likely to have increased significantly in the fourth quarter. Imports of capital goods declined in the fourth quarter if transport vehicles are excluded, imports of which increased due to investment by state companies. Utilisation of production capacity is now close to its average level of before the crisis, meaning that the need for new investment is increasing.
Although preliminary assessments show that economic growth was lower than was forecast, demand in the external environment is gradually recovering. The output of manufacturing industries increased by notably more than GDP did in the fourth quarter, growing by a seasonally adjusted 2% in the quarter, while value added increased by 10% over the year according to initial estimates. Sales growth in the manufacturing sector was supported in the fourth quarter by increased exports towards the euro area, though exports of manufactured goods away from the euro area declined. While there is optimism in Europe about the economy recovering, the risks to growth in developing economies have increased somewhat recently.
Source: Bank of Estonia
Author: Kaspar Oja, Economist at Eesti Pank
An Estonian-owned construction material manufacturer, Krimelte, has acquired a majority holding in a Spanish firm, Olivè Qukmica, a move characterized as a breakthrough into a blue chip, Old World market.
Krimelte’s plants in Estonia, Russia and Brazil produce foams, sealants and adhesives.
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Google announced this week that it has paid USD 400m for a London-based artificial intelligence company DeepMind, writes Äripäev.
The deal is relevant to Estonia because one of the investors and advisers of the company is Jaan Tallinn who is better known as one of the Estonian developers of Skype and Kazaa.
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Mikael Backman, CEO of Viking Line explains that the ferry line decided to move its Viking XPRS ferry which services the Tallinn-Helsinki route from the Swedish registry to the Estonian one because of cost savings, writes Äripäev.
In an interview to Äripäev, Backman says that the move will create 200 jobs.
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Estonian businessmen Armin Kõomägi, Indrek Prants and Sven Mansberg who own half of Estonian electronics retailer Klick Eesti are interested to buy the rest of the company from Swedish investment firm Askembla Growth Fund, writes Äripäev.
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Estonia’s economic growth continued to be based on domestic demand in 2013 and this was primarily driven by higher household incomes and consumption. The support for the Estonian economy from exports has been less than was earlier forecast because growth in Estonia’s main trading partners was weaker than expected in the first half of the year. The consequence was that the Estonian economy declined in the first half of 2013. Although growth recovered in the third quarter, growth for the full year will be a modest 1%. Estonian economic growth will accelerate as export markets recover, reaching 2.6% in 2014 and 3.9% in 2015.
The euro area economy has recovered at the expected speed and the economic decline that had lasted for six consecutive quarters came to an end in the second quarter. The joint forecast produced by the central banks of the euro area sees that the euro area economy should grow by 1.1% in 2014 and 1.5% in 2015. Inflation in the euro area will stay at 1.4% this year and will slow to 1.1% next year as domestic demand is weak, food commodity prices are falling, and energy price rises will be small as the oil price falls. It is expected that euro area inflation will pick up to 1.3% in 2015. Limited price pressures mean that financial markets expect interest rates to remain very low throughout the forecast horizon. The Governing Council of the European Central Bank has equally confirmed that its monetary policy interest rates will remain low for an extended time.
Interest rates have stayed low in the Estonian lending market and access to bank loans has been good but despite this, growth in fixed capital formation came to a stop in 2013. The main reason was that companies had little need for investment as their existing production resources have been underused. The recovery in export markets should encourage companies to invest in increasing their fixed assets. Increased production capital and an improved supply of capital to labour will allow competitiveness to be maintained and will raise production levels even as the working age population is shrinking and labour costs are rising rapidly. Low levels of investment activity will threaten both the development prospects for companies and the sustainability of economic growth.
Employment increased rapidly in the first half of 2013, but the growth levelled off in the third quarter. A small but constant fall in employment is expected in the coming years. Employment is mainly falling due to the ageing of the population and emigration, and therefore unemployment will similarly fall in the next few years. Unemployment will fall slowly because the current workforce can be employed more intensively through increases to the working hours that were cut after the crisis.
Higher productivity of employees, rises in the minimum wage and an increased public sector payroll will keep growth in household incomes strong in the years to come. The rapid rise in incomes will improve the real purchasing power of households, but combined with consistently low interest rates it could push real estate prices to rise too fast.
Estonian companies have thus far managed to cover their rapidly rising wage costs with price rises, but this is mainly the case for businesses that are focused on the domestic market. Those that are exposed to foreign competition have not been able to raise prices to the same extent. In the economy as a whole, wage growth has outstripped the growth in labour productivity, but wage growth and productivity growth are forecast to come more into line as economic activity recovers. If economic growth remains weak, it will be exporting companies that will primarily find it hard to maintain profitability in the face of rapid and constant wage rises, and this could lead them to reduce their numbers of employees.
Consumer price growth will remain moderate in Estonia in the coming years, reaching 2.1% in 2014 and 2.9% in 2015. Prices will rise more slowly than in previous years, partly because the impact of the sharp rise in electricity prices on the consumer basket will pass out from the comparison base at the start of 2014. Price pressures will also be reduced by a fall in the price of oil. The prices of imported goods will start to rise gradually as the euro area economy recovers. Core inflation will increase at the same time, driven by domestic factors, principally wage rises. The risks to prices are more on the upside because a recovery in global economic growth that is faster than expected could lead demand for commodities, including oil, to push prices higher.
The fiscal position of the general government will remain strong in the next few years. Spending under the budget will still exceed income throughout the forecast horizon. The structural fiscal position with cyclical effects stripped out will remain in surplus throughout the years covered by the forecast, but the surplus will shrink. The government’s decision to focus on the structural surplus and to delay reaching nominal balance may not be justified, given that there is some mismatch between assessments of the economic cycle. Although the economy as a whole is below its potential output, rapid growth in employment, wages and private consumption have increased the tax take and so the negative impact of the economic cycle on the fiscal position is smaller. If the target of nominal balance is repeatedly pushed back, this will pose a threat to strict fiscal discipline and will not allow the state to increase the reserves it would use to balance the economy if the downside risks should be realised.
Read more from Bank of Estonia website
The Swedish construction group Skanska announced that it will terminate its operations in Estonia by the end of 2014.
Skanska AS, a holding of the Nordic Skanska group, is a subsidiary of the Finnish-registered Skanska Oy.
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Accor, the French hotel chain, is showing an interest in Estonia, with plans for a location in the heart of downtown Tallinn.
A member of the board of Palmgrupp OÜ, an Estonian real estate development company, says they have signed an agreement with Accor for managing two hotels, Postimees wrote.
The board member Janno Rokk, divulged no further information on the timetable, saying: “We are prepared to develop it when they come and they will come when the funding is in place.”
The development would take place on lots owned by OÜ Palmgrupp at Hobujaama 12 and 14a, the interchange where two sets of tram tracks meet and where a new shopping center recently opened.
Accor, which operates 3,555 hotels in 92 countries, would bring its Adagio and Ibis trademarks to Estonia.
Source: ERR / Estonian Review
The EBRD announced yesterday that it has agreed to provide an investment of up to EUR 20m to BaltCap Private Equity Fund II, L.P. for equity and equity-related investments in small and medium-sized enterprises and small mid-cap companies in Estonia, Latvia and Lithuania.
The fund has a target size of EUR 100 million and aims to develop Baltic companies into leaders in and beyond their region that can attract international investors.
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