Population decline is slowing down

According to the revised data of Statistics Estonia, 1,313,271 persons lived in Estonia on 1 January 2015 – 2,666 persons (0.2%) fewer than at the same time a year earlier. Negative natural increase is the main cause for population decline, while the influence of emigration has decreased significantly.

The population decreased by 733 persons due to negative net migration (with more people leaving Estonia than taking up residence here) and by 1,933 persons due to negative natural increase (the number of deaths exceeded the number of births). Among the processes influencing population decline, there has been a rise in the share of negative natural increase. The previous time when the population number decreased more because of negative natural increase than because of external migration was in 2003.

In 2014, 13,595 persons were born and 15,528 persons died. The number of births remained at the level of the previous year. This is a positive indicator because the number of women in childbearing age is decreasing each year. Just four years earlier, as many as 2,000 children more were born (there were 15,825 births in 2010). The number of deaths has been declining since the beginning of the 1990s and in the last five years the number of deaths per year has remained between 15,000 and 16,000.

In 2014, more people left Estonia than took up residence here; immigrants numbered 3,904 and emigrants – 4,637. Compared to the three previous years, external migration has decreased by nearly 30%, while the level of immigration has remained the same. Since immigration consists mainly in return migration, which occurs generally 1–2 years after emigration, then after a previous period of more active emigration a higher level of immigration can be expected.

Harju county was the only county where the population number increased (by more than 3,000), mainly due to an increase in the population of Tallinn city. The decline was the biggest in Ida-Viru county – both in absolute and relative figures. Population loss exceeded 1% also in Järva and Lääne counties. A relatively small decline occurred in Saare and Hiiu counties, with population decreasing by fewer than 50 persons in both counties. In the rest of the counties, the population declined by 0.5–0.9%.Diagram: Natural increase and net migration, 2005–2014

The estimated population number is based on the 2011 Population and Housing Census and estimated under-coverage, and has been adjusted based on births, deaths and migration registered in the following years. The population number changes slightly due to revisions of personal ID-codes and the inclusion of persons who had been missing from population statistics so far.

Source: Statistics Estonia

Central bank has allocated 25 pct of its profit to the state budget

The Supervisory Board of Eesti Pank decided on Tuesday, May 5 2015 to transfer one quarter, or 4.3 million, of the 17 million euros it made in profit last year to the state budget. The remaining three quarters of last year’s profit will go to strengthen the capital of the bank.

Chairman of the Supervisory Board Mart Laar said that the amount of capital that can be transferred is limited because Eesti Pank has relatively little capital compared to that held by the other central banks of the euro area.

“It is the policy of the Supervisory Board that the central bank should have sufficient reserves so that if there is any problem Eesti Pank can cope without any help from the state. Central banks normally face losses when economies in general are in difficulties. Increasing the reserves reduces the chances of an additional burden needing to be placed on the state budget in an economic crisis”, he explained.

The ratio of Eesti Pank’s increased capital to the assets used for monetary policy is one of the lowest of any of the central banks of the euro area. The comparison with the other central banks of the euro area is important, as the balance of risks to capital of the central banks of the euro area and the European Central Bank all taken together is considered when joint monetary policy decisions are made.

For this reason the Supervisory Board set a long-term goal in 2012 of increasing Eesti Pank’s capital ratio to the average level of the central banks of the euro area. This means it is necessary to raise the level of capital by about a billion euros to 1.3 billion.

Last year, Eesti Pank received 16.7 million euros in income from the joint monetary policy and currency issuance activities of the Eurosystem, which contains the national central banks of the euro area and the European Central Bank. In 2013 income from this source was 42.2 million euros. Earnings from investment activities were 12 million euros last year, and 3.7 million in the previous year. Eesti Pank’s operating expenses fell last year to 17 million euros from the 17.4 million of a year before.

The net income for 2014 was reduced by general risk provisions of 7.7 million euros to cover risks. In the past three years Eesti Pank has built up risk provisions of 26 million euros in total. Risk provisions are the first line of defence against losses on top of the reserves already held at the central bank.

Since 1992 Eesti Pank has allocated a total of 133 million euros to the state budget.

Risks to Eesti Pank in monetary policy
The risks to Eesti Pank under the currency board came from the investments of the central bank and from the banking system. When Eesti Pank became a euro area central bank, it also took on the risks of the euro area as a whole, which are mainly related to monetary policy operations.

The Eurosystem is made up of the central banks of the euro area countries and the European Central Bank. The Eurosystem divides the income and costs of the single monetary policy, so that the income earned from monetary policy loans to euro area banks is divided among the central banks to match their participation in the Eurosystem, and the same is done with risks. Eesti Pank’s participation in the Eurosystem at the end of 2014 was 0.28 percent, which is the basis for the distribution of the previous year’s income and expenses. From 2015, Eesti Pank’s participation is 0.27 percent.

The Eurosystem held 513 billion euros in monetary policy loans to commercial banks and 339 billion euros of securities held for monetary policy purposes as at 24 April.

Hedging of monetary policy risks
To hedge against the risks of the monetary policy loans, the central banks of the Eurosystem have the right of claim against banks that have taken loans. The content of the collateral is the equity of the bank that has taken the loan. The euro area central banks only give out loans if collateral is provided, meaning that if the bank cannot pay back its loan to the central banks, then the central banks can instead take the collateral. If even this is not enough, the credit risks for the central banks are reduced by the national authorities and their desire to recapitalise their insolvent banks.

The Securities Market Programme (SMP) is backed by the promises of governments to meet all their obligations in full, meaning that if governments fail to meet their obligations fully or partially, including their obligations to the central banks of the euro area, then the euro area central banks suffer the loss.

The capital of central banks and its importance
In this case, the capital of Eesti Pank and the other central banks is meant in the wider sense of the part of the reserves and capital that the bank can use to cover losses.

The level of capital of the central bank is important because a central bank that has little or negative capital can cause two sorts of public concern. The first is the question of the central bank’s independence, if the bank needs to ask the government for additional capital. The second is the question of how much the central bank really wants to meet its inflation targets, which will then cause increased public expectations of inflation. The result of both these concerns is a loss of trust and of public faith that the central bank will be able to keep inflation under control successfully.

Source: Eesti Pank

Estonians make an average 169 card payments per year

An average of more than one million domestic payments were made each day in Estonia in the first quarter of 2015, with a total turnover of 371 million euros. The number of payments was 5% higher than in the first quarter of last year, but the turnover was 14% smaller. Bank cards were used for 63% of all the payments but as cards are used for the smallest payments, card payments provided only 3% of the turnover of all domestic payments.

The main use of bank cards in Estonia is for making payments, for which they are used around 634,000 times a day, while they are used around one seventh as often for cash withdrawals, around 95,000 times a day. This is the opposite to how things were at the start of the 2000s when cards were mainly used for withdrawing cash and rarely for making payments.

There were up to 3000 withdrawals of cash in foreign countries each day, accounting for 3% of all withdrawals. Larger amounts are taken out in each transaction in foreign cash machines, and the sum averaged 163 euros in the first quarter, while an average of 93 euros per transaction was withdrawn in Estonia.

Bank cards issued in Estonia were used in 184 countries in the first quarter of 20151. A daily average of around 36,000 card payments were made outside Estonia, which was equal to 5% of all the card payments using cards issued in Estonia. Cards were used for payments most in Finland, Sweden, Latvia, Russia and the United Kingdom. The individual payments outside Estonia are for larger amounts, averaging 34 euros, while the average in Estonia was 15 euros.

Residents of Estonia are among the most active users of card payments in the euro area. Card payments are made most per person in Finland, where 225 payments per person per year are made, followed by the Netherlands on 170 and Estonia on 169. Latvian residents in contrast average only 75 card payments per person per year.

Estonian residents made an average of close to 16,000 internet purchases per day in the first quarter of 2015, with a total value of around 847,000 euros. Interest in making purchases over the internet has increased rapidly among Estonian residents. The number of transactions was one quarter larger than in the same period of the previous year, and double the number of two years ago. More and more purchases are being paid for using debit cards that can function like credit cards. Such cards were used for 61% of all e-commerce card transactions in the first quarter. Estonian residents buy most from internet shops in the United Kingdom, while Estonian shopping sites are only the fifth most popular. Internet purchases in Estonia are paid for more by bank link rather than by card and some 41,000 purchases per day were made using a bank link in the first quarter.

Source: Bank of Estonia

Author: Tiina Soosalu, Eesti Pank Payment and Settlement Systems Department

The volume of housing loans continues to grow steadily

The total volume of loans and leases to Estonian companies and households was 3% larger in March than a year earlier. The loan and lease portfolio increased by 43 million euros during the month to 15.3 billion euros.

Annual growth in loans to companies was 3.3% in March as it had been in the previous month. Annual growth in new loans slowed in the first quarter to 5%, but new long-term borrowing increased as fast as before. Companies took out 12% more in long-term loans during the quarter than they did a year earlier and almost half of those went for financing real estate projects.

The volume of housing loans continues to grow steadily. Annual growth in the housing loan portfolio accelerated slightly to 3.2% in March and around 13% more was taken out in new loans in the first quarter than a year earlier. The amount taken out in housing loans in March was the same as in autumn last year. The volume of new car leases taken by households climbed to its highest level in six years in March. The car lease portfolio grew by more than 10% over the year, a little more than its average for the past two years.

Loan interest rates remained low. The average interest rate for housing loans granted in March was 2.2%, and that for long-term corporate loans was 2.5%. Loan interest rates have not changed in the past six months and remain favourable for borrowers as EURIBOR remains low.

The share of overdue loans in the loan portfolio shrank to 1.5% in March. The value of loans overdue for more than 60 days fell by 25 million euros during the first quarter and there was around 200 million euros in long-term overdue loans outstanding at the end of March. The last time that the volume of overdue loans was so low was in the middle of 2008.

Deposits continue to grow rapidly. The annual growth in household deposits has remained relatively fast at around 8% for a year already. The annual growth in corporate deposits also picked up in March and reached 8%. The total deposits of Estonian companies and households at the end of March stood at 9.9 billion euros.

Banks earned 191 million euros in net profit in the first quarter. Around 60% of this came from dividends paid out by subsidiaries. Without these dividends the net profit for the quarter would have been 3% smaller than a year earlier. The decline in net profit was partly due to the increased operating costs of the banks. The fall in EURIBOR reduced the interest income of the banks, which was down for the third consecutive quarter. As interest expenses also fell at the same time, net interest income barely changed from a year earlier.

Source: Bank of Estonia

Author: Jana Kask, Deputy Head of the Financial Stability Department of Eesti Pank

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

Exports from Estonia amounted to 0.9 billion euros in February

According to Statistics Estonia, in February 2015, exports of goods decreased by 7% and imports by 4% compared to February of the previous year. The decrease in exports and imports was mostly influenced by a fall in the trade of mineral products and mechanical appliances.

In February, exports from Estonia amounted to 0.9 billion euros and imports to Estonia to 1 billion euros at current prices. The trade deficit was 141 million euros and it increased by 17 million euros compared to February 2014.

The biggest share in Estonia’s exports in February was held by electrical equipment (22% of Estonia’s total exports), followed by wood and products thereof (11%) and agricultural products and food preparations (10%). The decrease in exports compared to February 2014 was due to a significant decrease in the exports of mineral products (down by 34 million euros) and mechanical appliances (down by 11 million euros). The biggest increase occurred in the exports of wood and products thereof (up by 11 million euros) and electrical equipment (up by 6 million euros).

In February, the main commodities imported were electrical equipment (21% of Estonia’s total imports), agricultural products and food preparations (10%) and mineral products (10%). The drop in imports was influenced the most by a decrease in the imports of mineral products (down by 43 million euros) and mechanical appliances (down by 11 million euros). At the same time, the imports of electrical equipment increased (up by 44 million euros).

The top destination country of Estonia’s exports in February was Sweden (19% of Estonia’s total exports), followed by Finland (15%) and Latvia (10%). 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 decrease occurred in exports to Russia (down by 46 million euros), to Latvia (down by 15 million euros) and to Norway (down by 14 million euros). Exports to Russia were affected by a decrease in the exports of mechanical appliances (incl. bulldozers, excavators) and agricultural products and food preparations (incl. spirits, milk and dairy products, fish). Exports to Latvia fell mainly due to a decrease in the exports of mineral products (incl. motor spirits, electricity) and transport equipment (incl. motor cars). Exports to Norway decreased due to reduced exports of mineral products (incl. aromatic hydrocarbon mixtures) and miscellaneous manufactured articles (incl. prefabricated buildings). At the same time, there was a significant increase in exports to the Netherlands (up by 17 million euros) and Iran (up by 11 million euros). In the case of the Netherlands, the exports of mineral products (incl. oil shale) increased. In the case of Iran, there was a rise in the exports of agricultural products and food preparations (incl. barley).

The main countries of consignment in February were Finland (13% of Estonia’s total imports), Germany (10%) and Latvia (9%). The main commodities imported were electrical equipment and mineral products (incl. motor spirits, electricity) from Finland; mechanical appliances and transport equipment from Germany; and electrical equipment and agricultural products and food preparations from Latvia. The biggest decrease occurred in imports from Germany (down by 29 million euros) and Finland (down by 26 million euros). There were decreased imports of mineral products (incl. heavy oils) and mechanical appliances from Germany, and decreased imports of mineral products (incl. motor spirits and electricity) and transport equipment from Finland. At the same time, there was an increase in imports from China (up by 15 million euros) and Hungary (up by 13 million euros). The increased imports from China were mainly due to the growing imports of electrical equipment and textiles and products thereof, while the imports from Hungary grew mainly due to the increased imports of electrical equipment.

Read more from Statistics Estonia

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


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