The external balance improved last year

Growth in exports of goods and services was faster in the final months of last year than in the preceding quarters, though the developments were different for different groups of goods. So whereas exports of dairy products were around 30% smaller in the fourth quarter of last year than in the same quarter of the previous year for example, growth in exports of goods averaged around 3-4%. Growth was positive even though export prices fell by 3.7%. The growth in the export of goods was aided significantly by an increase in net re-exports. Exports of services also grew strongly in the final months of the year, mainly driven by maritime other transport services and construction services. The goods and services account was again in surplus in the last quarter of the year and the current account as a whole also moved into surplus.

The current account deficit in 2013 stood at 1.1% of GDP, but for 2014 as a whole it was very small, shrinking mainly because of increased exports of services. Growth in domestic demand was modest as companies reduced their investment activity for the second consecutive year, which held back growth in imports and so supported balance in the current account.

A current account that is close to balance means that substantial movement of capital in the financial account is not needed, as there is no need for additional funds from abroad to cover investment. The turnover of transactions, or the inflow and outflow of funds, was actually larger than in 2013 though, probably because of transactions made for liquidity management and financial investment. However, the increased inflow and outflow of funds did not significantly affect investment activity in the private sector last year. The Estonian economy was a net lender in 2014, as it had been in 2013 and by a similar amount, and by the end of the year, the net external debt stood at -9% of GDP.

This meant that the external balance of the Estonian economy improved last year in the figures for both the balance of payments and the international investment position.

 

Source: Bank of Estonia

Author: Andres Saarniit, Economist at Eesti Pank

Estonian Competitiveness Report 2015

Summary of the Estonian Competitiveness report published by the central bank of Estonia

• Estonian consumer price inflation was below average in 2014. Estonian price competitiveness strengthened in the markets of countries in the euro area, where Estonian relative prices fell, but it weakened in several other markets. Price-based competitiveness declined most in relation to Russia, while local inflation was not enough to compensate for the fall in the rouble, meaning that Estonian relative prices increased in the Russian market.

• The IMF methodology for the equilibrium current account position and the real exchange rate implies that the real exchange rate of the euro could be around 6% undervalued for Estonia, which should continue to favour opportunities for growth for Estonian exports.

• Products from different countries compete not only on price but also on other, qualitative, factors. Those European Union countries where prices and costs are rising faster than in other countries managed to increase export market share more.

• The share of Estonian exports of goods and services in global exports increased by a factor of 2.1 in current prices in 2000-2013 and by a factor of 1.5 at constant prices. The most recent data from 2013 show that the market share of Estonian exports was still increasing at current prices but had shrunk slightly at constant prices. This means that the value of Estonian exports only grew because of rises in relative prices.

• The role played by non-price factors in the growth of the market share of Estonian exports is shown by several expert analyses of export quality and complexity. The quality of Estonian exports has improved over the years, and relatively faster than in many other European Union countries. Improved quality allows prices to be raised without any threat to competitiveness.

• The complexity of exports also helps explain how relative growth in export prices shows only improvement in the qualities of export products. This indicates that Estonia is capable of achieving GDP growth that is better than average. Faster growth needs faster movement in the direction of more complex export products.

• Micro-level data show that the export premiums in the productivity and wages of Estonian exporters are large. The productivity of Estonian exporting companies is on average 25% higher than that of non-exporting companies and exporting companies pay 15% higher wages on average. These premiums have shrunk since the recession though.

Source: Eesti Pank

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Imports were at the lowest level of the recent years in January

According to Statistics Estonia, in January 2015, exports from Estonia amounted to 920 million euros and imports to Estonia to 963 million euros at current prices. The previous time that imports were below a billion euros was in December 2011.

In January, exports of goods increased by 1% and imports decreased by 5% compared to January 2014. The trade deficit was 43 million euros and it decreased by 68 million euros compared to January 2014.

In January, the main commodities imported were electrical equipment (22% of Estonia’s total imports), mineral products (12%) and agricultural products and food preparations (10%). The drop in imports was influenced the most by a decrease in the imports of mineral products (down by 19 million euros), transport equipment and agricultural products and food preparations (both down by 18 million euros). At the same time, the imports of electrical equipment increased (up by 27 million euros).

The biggest share in Estonia’s exports in January was held by electrical equipment (a quarter of Estonia’s total exports), followed by mineral products (11%) and wood and products thereof (10%). The increase in exports compared to January 2014 was due to a significant increase in the exports of electrical equipment (up by 48 million euros) and mineral products (up by 7 million euros). The biggest decrease occurred in the exports of agricultural products and food preparations (down by 20 million euros) and mechanical appliances (down by 11 million euros).

The main countries of consignment in January were Finland (15% of Estonia’s total imports), Sweden (12%) and Germany (10%). The main commodities imported were mineral products and electrical equipment (from Finland), electrical and transport equipment (from Sweden) and mechanical appliances and transport equipment (from Germany).The biggest decrease occurred in imports from Finland (down by 30 million euros) and Germany (down by 29 million euros). At the same time, imports from Poland and Russia increased (both up by 12 million euros).

The top destination country of Estonia’s exports in January 2015 was Sweden (21% of Estonia’s total exports), followed by Finland (14%) and Latvia (11%). Electrical equipment and wood and products thereof were the main commodities exported to Sweden; electrical equipment and metals and products thereof were the main commodities exported to Finland; mineral products (incl. electricity) and agricultural products and food preparations were the main commodities exported to Latvia. The biggest increase occurred in exports to Sweden (up by 29 million euros) and the USA (up by 15 million euros). There was also a significant decrease in exports to Russia (down by 53 million euros) and Finland (down by 14 million euros).

In January compared to December 2014, exports stayed at the same level but imports decreased by 14%.

Diagram: Estonia's foreign trade by month

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More complex exports help lead to faster growth

Exports of Estonian goods and services grew faster in 2000-2013 than global exports as a whole in both current and constant prices, meaning that Estonian exports managed to gain market share during those years.

Estonian price competitiveness strengthened in the markets of many countries, where Estonian exporters gained a slight advantage in trading from the depreciation of the euro or from prices rising less quickly. In some other markets, notably Russia, exporting became more difficult.

Estonian products compete not only on price but also more and more successfully on other, qualitative, factors. The movement up the quality ladder allowed a reduction in the share of competitiveness that was price-based, as Estonia moved in 2005-2011 from low-quality products towards medium-quality ones, while the number of high-quality products clearly increased. As a relatively poor country, Estonia can compete in markets for comparatively complex export products, so in 2011 Estonian productivity was 37% of that in Germany at current prices, but the indicator for complexity of exports stood at 78%. This should leave the Estonian economy relatively well placed to grow faster than the average for the European Union.

A study using detailed corporate data has shown that Estonian manufacturing companies that export are on average 25% more productive than non-exporters, pay 15% higher wages and have 50% more employees. The productivity of exporters is high because more productive companies are more likely to enter foreign markets. Productivity has also improved as a result of exports because of economies of scale and lessons learned in export markets.

Source: Bank of Estonia

Author: Natalja Viilmann and Jaanika Meriküll; Eesti Pank Economists

NASA uses Estonian-founded GrabCAD

The National Aeronautics and Space Administration (NASA), the US government agency responsible for the civilian space program as well as aeronautics and aerospace research, is using the Estonian-founded, US-based, online engineering platform GrabCAD to design a handrail clamp assembly (HCA) for the International Space Station (ISS) that can be printed on the ISS 3D printer.

Called NASA Handrail Clamp Assembly Challenge, the aim is to find the best design for a rigid clamp that is used by astronauts on the ISS. The handrail clamp is used by astronauts in a microgravity environment to mount various things.

The HCA design will be printed by the 3D printer on-board ISS and will be named CHAMP (Clamp for Handrail with Additively Manufactured Parts).

NASA is using the GrabCAD community of designers and engineers to find a new design.

Founded in 2010, GrabCAD helps engineers get products to market faster by connecting people, content and technology. The firm offers GrabCAD Workbench, a cloud-based collaboration tool that enables engineers and designers to share, view and manage CAD files and other design data. GrabCAD is also home to a community of more than 1.6 million members from around the world, who can access a large public CAD file library, as well as connect with other engineers.

GrabCAD was recently acquired by the US-Israeli provider of 3D printing solutions, Stratasys Ltd, for around 100 million dollars.

The NASA challenge will be open for submission until February 16 and winners will be announced on month later

Source: ERR News via Estonian Review

Winners and losers of cheaper oil in Estonia

• Cheaper oil boosts consumption and cuts production costs
• Lower energy prices reduce oil shale revenues
• Less expensive oil also diminishes export demand

Cheaper oil boosts consumption and cuts production costs
The positive oil price shock is expected to lift households’ real disposable incomes and companies’ profit margins in several sectors. Companies will benefit from lower energy costs and the higher real purchasing power of households. Spending on motor fuels amounts to around 6% of final consumption expenditure of households, i.e., around EUR 1,000 per household per year, on average. If oil prices were to decline by 30% in euros this year, then consumption would increase by less than 1 percentage point.

Lower energy prices reduce oil shale revenues
In 2014, the trade deficit of mineral products in Estonia was around 2% of GDP. Estonia imported petroleum and coal, but exported electricity, peat, cement, and crude petroleum oils. The good news is that the prices of electricity, peat, and cement are less directly linked to global crude oil prices, and the volumes of oil shale’s fuel oils are relatively small. The production of the fuel oils from oil shale constitutes around 2% of Estonia’s GDP and employs around 3,500 people (0.6% of total employment in Estonia).

Less expensive oil also diminishes export demand
Even when cheaper oil benefits Estonia’s consumers and a large part of its producers, it will reduce demand in net oil-exporting countries like Russia and Norway. The economic crisis in Russia – although not entirely caused by cheaper oil – will also worsen the outlooks for the Baltic economies and Finland. As a result, Estonia’s export market growth rate is lower, even when cheaper oil is believed to lift the economic growth rate of the EU and the world as a whole.

Source: Swedbank

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Estonia exported goods worth 12.1 bEUR in 2014

According to Statistics Estonia, in 2014, exports from Estonia amounted to 12.1 billion euros and imports to Estonia to 13.7 billion euros at current prices. The trade deficit was 1.6 billion euros and it increased by 126 million euros compared to 2013.

In 2014, exports of goods decreased by 2% and imports by 1% at current prices, compared to 2013. The year-over-year comparison of trade was influenced the most by the single transaction made with ships in January 2013; it is excluded from trade, then the level of trade in 2014 remained on the level of 2013.

In 2014, the share of European Union countries was 72% in the exports of goods  and 83% in imports; compared to 2013, the indicator remained on the same level for exports, but decreased 1% in the case of imports. The biggest trade surplus was recorded in trade with Sweden and Norway and the biggest trade deficit occurred in trade with Germany and Poland.

In 2014, the main countries of destination were Sweden (18% of Estonia’s total exports), Finland (15%) and Latvia (11%). Electrical equipment and wood and products thereof were mainly exported to Sweden, electrical equipment and metals and products thereof to Finland, and agricultural products and food preparations and mineral products to Latvia. The largest decrease was recorded in exports to Russia (down by 216 million euros), Finland (down by 138 million euros) and Lithuania (down by 81 million euros). Exports to Russia decreased on account of mechanical appliances and agricultural products and food preparations. Less transport equipment was exported to Finland and fewer mineral products to Lithuania. The most significant increase occurred in exports to Sweden and the USA.

The main countries of consignment in 2014 were Finland (15% of Estonia’s total imports), Germany (12%) and Sweden (11%). Mineral products and electrical equipment were mostly imported from Finland, mechanical appliances and transport from Germany and electrical and transport equipment from Sweden. The most significant decrease occurred in imports from the United Kingdom (down by 136 million euros), Latvia (down by 129 million euros) and Lithuania (down by 91 million euros). Imports from Germany and Sweden increased the most.

In 2014, the most important commodity group in exports was electrical equipment (22% of Estonia’s total exports), followed by mineral products (11%), and agricultural products and food preparations (10%). The decrease in Estonia’s exports in 2014 compared to 2013 was mostly influenced by a decrease in the exports of transport equipment (down by 161 million euros), raw materials and products of the chemical industry (down by 99 million euros) and mechanical appliances (down by 76 million euros). The exports of electrical equipment and wood and products thereof increased the most.

In 2014 the biggest share of Estonia’s imports was held by electrical equipment (19% of Estonia’s total imports), followed by mineral products (13%), and agricultural products and food preparations (11%). The decrease in imports was influenced the most by transport equipment (down by 264 million euros), mechanical appliances (down by 140 million euros) and agricultural products and food preparations (down by 30 million euros). At the same time, the imports of electrical equipment and mineral products increased.

In 2014 compared to 2013, export prices fell by 2.6% and import prices by 2.2%.

In December 2014, the value of exports of goods was 0.9 billion euros and the value of imports was 1.1 billion euros. In December 2014 compared to December 2013, exports increased by 3% and imports by 9%.

Read more from Statistics Estonia
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