Estonian integration activities in 2014

Minister of Culture Indrek Saar introduced the 2014 summary of the “Integrating Estonia 2020” development plan to the Government of the Republic. The Government acknowledged the summary. The summary highlights the status of fulfilling strategic and area-specific objectives as well as the used funds in 2014.

Development plan “Integrating Estonia 2020” serves as a basis for the implementation and funding of the integration policy for the period of 2014-2020. The general objective of the development plan is to have the Estonian society integrated and socially cohesive, to have people with different linguistic and cultural backgrounds actively participating in the society and sharing democratic values.

“The most significant initiatives of the last year were the decision to create a Russian language television channel as well as developing the conditions of the support measures of the European Social Fund for supporting permanent residents less integrated into the Estonian society and new arrivals. A recommended model has also been developed for transitioning to Estonian as a language of instruction in basic schools,” explained the Undersecretary for Cultural Diversity to the Ministry of Culture Anne-Ly Reimaa. “The language immersion programme, preparing the Russian module for the “Jurist aitab” interactive portal and many other activities also continued,” Reimaa added.

In 2014, all target levels in citizenship, general education and employment were fulfilled. For example, the number of persons with undetermined citizenship decreased and 1,611 people were granted Estonian citizenship under naturalisation. The average final examination results in Estonian among students with a native language different from Estonian also improved and the share of 18–24 year old people with a native language different from Estonian and with a low level of education decreased. The employment rate decreased among Estonians as well as among other nationalities and the employment gap between Estonians and employees of other nationals decreased as well.

The average results of final examinations of basic school in Estonian as a second language has a slight decrease from 68 points to 67.1 points. The employment rate of residents of other nationalities also declined from 60.3% to 59.2%.

A detailed implementation plan for 2014-2017 complements the “Integrating Estonia 2020” development plan. The size of the 2014 budget of the implementation plan was 3,440,000 euros. In addition to the Ministry of Culture, in 2014, the measures and activities of the development plan were also funded by the Ministry of the Interior, Ministry of Education and Research, Ministry of Social Affairs and the Ministry of Justice.

Source: Ministry of Social Affairs

Government buys land on Estonian border

Four in five owners of land on the Estonian-Russian border have given their consent to clearing their land on the border strip of trees and bushes and the Interior Ministry will start making offers to buy the land at the end of this month.

At the moment 77 owners of privately held land plots or about 80 percent of landowners have given their consent to clearing of the border strip, spokespeople for the Interior Ministry told BNS. The ministry is planning to buy up all the land that constitutes the border strip by the end of this year.

Interior Minister Hanno Pevkur, who visited south-eastern Estonia for the cornerstone laying ceremony of the new complex of the border guard base at Piusa on Monday, met with the landowners who have allowed work to be done on their land to thank them for cooperation.

“Evaluation of the land under the border strip will begin already at the end of this month, at the same time making of proposals to landowners to sell the land under the border strip will begin,” Pevkur said. He said the ministry wishes to make just offers for the land and expects to be able to avoid expropriation. “We are planning to transfer all the pieces of land under the border strip that are currently in private ownership by the end of 2015,” Pevkur said.

Seventy-two kilometres of the border between Estonia and Russia making up approximately 200 hectares of the roughly 300 hectares of land constituting the border strip has been cleared of high-growth vegetation by now. The work will continue through the summer.

Source: BNS News

April saw a reduction in Estonia’s activity in foreign markets

The flash estimate1 put the Estonian current account at 20 million euros in surplus in April 2015. Almost all the components in the current account were down, as exports and imports of goods and services and income from direct investment were less than in April last year. As the fall in imports was larger than that in exports however, the current account moved into surplus.

The sum total of the current and capital accounts was also positive in April. This means that the Estonian economy was a net lender to the rest of the world, so the country as a whole invested more resources abroad than it received from there.

Eesti Pank is publishing the flash estimate of the balance of payments monthly for the last month but one. From January 2015 Eesti Pank is accompanying the publication of the flash estimate with a short comment. The statistics on the second quarter of 2015 will be published with a comment on 8 September.

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.

Read more from Bank of Estonia website

The Estonian economy has entered a phase of slower growth

  • Growth has been satisfactory in the Estonian economy given the difficulties in several of Estonia’s main export markets
  • Growth is accelerating to between 3% and 4%, which is the current growth potential
  • Stresses have not increased in the labour market, but falling company profits are a warning sign

Growth is speeding up in Estonia, but it remains slower than before the crisis, and growth of 2.2% this year is about the same as last year. It will be 3–4% in the next two years, which is the same as the long-term growth capacity of Estonia. Faster growth is restricted by the decline in population, and by the current structure of production, equipment and production technology, which are more complex and costly to add to than was the case before. Without structural reforms to support growth, it could only exceed 4% temporarily, and probably at the cost of the economy overheating.

As several key markets for exports from Estonia are facing difficulties, the growth in the Estonian economy last year can be seen as satisfactory. The outlook for economic growth in the years ahead has not changed much since the December forecast as the exporting sector has so far proved able to cope successfully with the difficulties it has faced. Although exports to Russia have more than halved and the negative impact from Russia is also felt in the Estonian economy through other trading partners, export volumes have still increased.

The fall in Russia’s share of foreign trade has been offset by an increase in the share of Sweden and the euro area, and this change will benefit Estonia in the near term. Growth in the euro area has been rejuvenated by the weak euro, improved competitiveness, lower unemployment, expansive monetary policy, lower credit barriers, and a reduced need to consolidate public sector budgets.

Economic growth in Estonia has been aided above all in recent years by strong domestic consumption. Consumption has primarily increased because household incomes have risen, as both employment and average wages have climbed faster than increased output from companies might have indicated. Despite the strong growth in wage costs, companies generally find that their competitiveness in the European Union market has improved, which suggests that non-price competitiveness has improved and Estonia’s advantage as a producer lies in more than cheap labour resources.

Rising employment and an unchanged vacancy rate indicate that the pressure for wage rises has not increased. The unemployment rate has fallen to the level it was at during the boom and the number of long-term unemployed has also fallen. The number employed will fall next year, but from 2017 it will shrink more slowly than the working age population because of the work capacity reform that will come into force in 2016. Many of those who will be entering the labour market because of the reform do not have appropriate skills or knowledge, so the unemployment rate will rise as a consequence of the reform.

The fall in corporate profits points to the risk that investment and a building up of the economy’s capacity for growth could become more complicated. This could happen if the fall in profits that happened last year were to continue for a longer time. Corporate profits can mainly be increased by a rise in productivity, which would require investments in efficiency and product development. Investment in more efficient production is also vital because of the decline in the population of working age. Credit conditions continue to favour financing for investment and further growth in it.

The fall in consumer prices that started last year has benefited Estonia. The fall in the price of energy sources has had a positive effect, as Estonia imports more fuel than it exports. Cheaper energy has benefited the Estonian economy more than others because it uses relatively more energy than other countries.

Inflation will pick up in the second half of this year, as prices will start to rise for food and energy. Prices will be lifted further in the next two years by the planned rise in consumption taxes. On top of the rise in the prices of domestic production, which is being driven by wage rises, the depreciation of the euro has led prices of imported products to start rising faster.

The Estonian government’s fiscal policy needs to be sustainable to provide stability for a small and open economy that is exposed to risks from the external environment. The government can only act countercyclically and mitigate the negative effects of risks if there is sufficient fiscal space. The new government that took office in the spring confirmed in its budget strategy that is determined to keep the budget in balance over the medium term. The Eesti Pank forecast finds that it is possible for balance to be achieved in broad terms. The budget will remain slightly in structural deficit throughout the forecast horizon because planned social benefits and investment will lift spending above the long-term balanced level of revenues. The new coalition has continued with the strategic goal of shifting the tax burden from labour to consumption. It is important to make sure that sharp or unexpected tax changes do not increase uncertainty among consumers or companies.

Economic growth will accelerate slightly in the coming years, and the risks surrounding it are more likely to reduce growth. The main risks to the outlook for growth come again from the external environment, such as trade restrictions and continuing geopolitical tensions between Russia and the European Union, or the recovery of the global economy and the increasing role played by emerging economies in the rate of it. The large volume of investment in the economy is exposed to the risk that the ability of the banks to get funding could suffer if asset prices in the Nordic countries were to start to fall.

Read more from Bank of Estonia website

The economy grew in the 1st quarter

According to the second estimates of Statistics Estonia, the gross domestic product (GDP) of Estonia increased 1.1% in the 1st quarter of 2015 compared to the 1st quarter of the previous year.

In the 1st quarter, the GDP at current prices was 4.7 billion euros. The seasonally and working-day adjusted GDP fell 0.3% compared to the 4th quarter of 2014 and rose 1.7% compared to the 1st quarter of 2014.

In the 1st quarter of 2015, the GDP was driven the most by a rise in value added in manufacturing, which was mainly due to the increased manufacture of electronic products and products of wood. At the same time, the growth of manufacturing was substantially negatively influenced by the decrease in the manufacture of food and paper products. Manufacturing, which is the largest economic activity in Estonia, was the biggest contributor to the GDP growth for the third quarter in a row.

In the 1st quarter of 2015, similarly to the previous quarter, the Estonian economy was inhibited the most by the decrease in value added in transport. The earlier decline was mainly due to the decline in warehousing and support activities for transportation. This time, the decrease was mainly caused by the decline in land transport.

Real GDP grew slower than the number of persons employed and hours worked (which grew 3.6% and 4.5%, respectively). Therefore, labour productivity per employee and per hour worked decreased for the second quarter in a row.

The labour costs for GDP production have increased. In the 1st quarter of 2015, unit labour costs increased 7% compared to the same quarter of the previous year. Consequently, compensation per employee has grown substantially faster than productivity.

The exports of goods of both manufacturing and the total economy increased in the 1st quarter of 2015 compared to the same quarter of the previous year. The exports of goods and services increased for the fourth quarter in a row, being influenced the most by the increase in the export of electronic products, coke and refined petroleum products and by the decrease in the export of other machinery and food products. Compared to the same period of the previous year, the import of goods and services decreased by 2.9% at real prices. Net export (i.e. the difference between export and import) was positive in the 1st quarter of 2015, amounting to 3.3% of the GDP.

Estonia’s economy was positively influenced by external demand and negatively influenced by domestic demand. Domestic demand decreased 1.6% at real prices, mainly due to the gross fixed capital formation and changes in inventories. In the 1st quarter, gross fixed capital formation decreased 7.7% at real prices, mainly due to the decline in the investments of non-financial corporations in machinery and equipment and in transport equipment. The remaining components of domestic demand contributed positively to economic growth.

Diagram: Real growth of the GDP and domestic demand compared to the same period of the previous year

Since the implementation of the ESA 2010 methodology in September 2014, Statistics Estonia and Eesti Pank harmonised their revision policy of national accounts and balance of payments estimates. In conjunction with the publication of the estimates for the 1st quarter of 2015, the estimates for the 4th quarter of 2014 were also revised. Compared to the indicators published on 11 March 2015, Statistics Estonia revised the real growth of the GDP in the 4th quarter of 2014 downwards by 0.01 percentage points.

On 8 September 2015, Statistics Estonia will release the regular revision for 2011–2014 based on supply and use tables and annual business reports. The updated data for the 1st quarter of 2015 will be published on the same date. In addition, the time series for 1st quarter 1995 – 4th quarter 1999 revised according to ESA 2010 will be published for the first time.

Source: Statistics Estonia

Estonian economic growth decelerates, but outlook is better

According to the second estimate of Statistics Estonia, GDP growth decelerated to 1.1% in real terms in the first quarter this year. Compared to the previous quarter, seasonally and working day adjusted GDP decreased by 0.3%. GDP decreased two years ago the last time.

Manufacturing sector, primarily electronics and wood production, contributed the most to the economic growth already third quarter in a row. At the same time, production volume of electronics has decelerated this year. The growth of the manufacturing sector was inhibited by the decrease in the value added of food, paper and chemicals’ industry. Main reason is the drop of exports to Russia, in case of chemicals to Latvia, as well. Transport sector and real estate activities inhibited GDP growth the most. Transport sector has decreased already for more than two years in a row, primarily due to the increased competition of the Russian cargo ports and recently, of the decreased demand from Russia.

Labour productivity decreased second quarter in a row as the growth of value added decelerated faster than hours worked. At the same time, labour costs increased, therefore, accelerating the growth of unit labour costs.

Although investments decreased by 8%, the drop was not broad-based and came primarily from the agricultural and energy sector. Despite the decrease in investments, these economic activities are among the largest investors in Estonia. Households increased their investments in dwellings, while government investments remained roughly on the same level as a year ago.

Deceleration of the growth of electronics production, as well as problems with the Russian market inhibited the growth of total exports from Estonia. Exports of goods and services increased by 2%. Deceleration of the export growth was expected. Together with the deceleration of the growth of production volume and drop in investments, import decreased, as well.

The growth of household consumption decelerated to 2% in the first quarter this year, primarily due to the decrease in consumption of alcoholic beverages and tobacco and less consumption on housing.Consumption of alcoholic beverages and tobacco has decreased already a year in a row. Increased consumption of foodstuff, transport, recreation, restaurants’ and hotels’ goods and services contributed the most to the household consumption referring to the increase in households’ real income. Household consumption has been and will be the main contributor to the economic growth in the coming quarters.

Weak industrial sector data in April refer to the possible continued deceleration of economic growth in the second quarter. Despite of that we are not going to revise our GDP forecast for this year (2.1%), yet. Strong decrease in export to Russia continues in the coming quarters, but the economy in Europe is gradually recovering.

Source: Swedbank

 

Electricity production decreased last year

According to Statistics Estonia, in 2014, the production of electricity totalled 12.4 terawatt-hours, which is over 6% less than in the previous year. Electricity production  from renewable sources increased nearly 13% compared to 2013.

The main reason for decreased production was the possibility to import cheaper electricity from the Nordic countries. Import from Finland grew 1.5 times in 2014 compared to the year before and represented more than 97% of total energy imports. At the same time, due to slightly colder weather conditions, the inland consumption of electricity increased more than 1% year over year.

The introduction of renewable sources has reduced the importance of oil shale in electricity production. In 2014 compared to 2013, the consumption of oil shale in power plants decreased nearly 5%. In 2010 over 85% of electricity was generated from oil shale, whereas in 2014 this share was 82%. As a result of increased consumption of wood in combined heat and power plants, about a half of renewable electricity was produced from biomass. The implementation of environmental projects has boosted waste treatment and has greatly increased the consumption of waste fuel and biogas for electricity generation.

With the development of new wind farms, the production of wind energy has also increased. In 2014 compared to 2013, the production of wind energy increased 14%. At the same time, there was no change in the production of hydroenergy. In six years, the share of electricity generated from renewable sources in total electricity consumption has increased more than twice, from 6.2% in 2009 to 15.3% in 2014.

In the last five years, the volume of oil shale production has increased every year, reaching 21 million tonnes in 2014, which is over 2% more compared to 2013. The majority of oil shale is consumed in power plants, but the growth in shale oil production has increased the consumption of oil shale as raw material for shale oil. In 2014 compared to 2013, the production of shale oil increased nearly 12%, whereas most of the production was exported. Nearly a third (33%) of this amount was exported to Belgium, followed by the Netherlands (20%) and Sweden (8%).

Over the last five years, the production of wood pellets has increased more than two times. Compared to 2013, the production of pellets grew nearly 25% in 2014. Over 90% of the wood pellets produced were exported – more than a half (54%) to Denmark, followed by Italy, Sweden and the United Kingdom each with about 8% of exports.

The production of peat fuels has shown a downward trend in the last five years. In 2014 compared to 2013, the volume of production did not change much.Diagram: Electricity production from renewable sources, 2003–2014

Source: Statistics Estonia

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