Andres Saarniit, Eesti Pank, economist

Estonia's goods exports have been rapid during exiting the crisis. In the first quarter of this year, the growth rate of investment in fixed assets together with the accumulation of reserves in current prices picked up to 52%, year-on-year. Such investment activity has usually led to goods imports exceeding that of exports and to a current account deficit. This year's current account indicators, however, are exceptional in this sense.

Irrespective of the moderate increase in goods deficit, the goods and services account continued to be in surplus, which was slightly smaller than last year, accounting for 2.5% of the first quarter's GDP. This means that different from the pre-crisis time, investment continued to be smaller than domestic saving. When analysing the current account, both now and in the future, it has to be considered that the reference base is very low for domestic demand components, especially as regards investment, since we are comparing this year's results with the crisis-time low level.

Investment income growth was, nevertheless, sufficient to push the entire current account into a deficit (1.7% of GDP) for the first time after two years. The profitability of companies has hiked in a year. From the point of view of the current account, the profit of foreign-owned enterprises is automatically recorded as outflow of investment income, even if the money remains in Estonia.

Looking at the capital and financial account of the current account, it can be seen that the public sector's cash flows had a stronger impact than usual. As mentioned before, the profit earned by foreign-owned enterprises and reinvested in the Estonian economy was high. This allowed them to continue to repay their external debts. In the balance of payments, this is recorded as cash outflow. Funds from the EU budget, emission allowances sales revenues, and changes in the activities of Eesti Pank due to the adoption of the euro offset the capital outflow arising from the decreasing debt burden of the private sector. All in all, capital inflow was slightly larger than outflow and foreign reserves increased to 0.7% of GDP within the quarter.

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Ingrid Mitt
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