The current account is moving a step at a time towards balance
- Growth in investment has led to increased imports
- The movement of capital was affected by structural changes in the financial sector
- During the first three quarters this year, 40% more foreign direct investment was made in Estonia than a year earlier
- The capacity of the economy to use money from abroad has improved
Growth in the Estonian economy was encouraged in the third quarter by growth in investment. Larger volumes of investment boosted imports, accelerating the growth in goods imports in the third quarter. At the same time, exports grew modestly as the decline that started last year in exports of communications equipment, which accounts for a large share of Estonian exports, continued. The current account surplus was smaller in consequence at 241 million euros, or around 4% of GDP, than a year ago, when it was 5.5% of GDP. The sharp fall in the surplus was reined back by a record surplus in services and larger inflows of grants, including foreign aid.
Once again, more foreign direct investment was made in Estonia than was made from Estonia abroad. The largest amount of money was put into financial and insurance activities and trade. Structural changes in financial institutions made an important difference by bringing with them new investment in equity. The net inflow of direct investment into manufacturing continued, though to a slightly smaller extent than in previous quarters. The main channel for investment was reinvested profits, while the amount of other equity investment declined. The direct investment in Estonia in the first three quarters of this year has been 40% larger than in the same quarters of last year, though the main reason for this has been some individual large transactions. The largest part of investment continues to come from Sweden and Finland. Direct investment abroad from Estonia has shrunk by one quarter during the same period.
The external assets of Estonian residents increased more than their external liabilities. This meant the net international investment position moved in the direction of balance and reached -33% of GDP. The improving net investment position means that the economy has ever more capacity to absorb funds from abroad for investment. The level of investment in fixed assets in recent years has mainly been low due to weak foreign demand and a lack of confidence at companies. Financing conditions have been good for quite a long time now. The norms of the European Commission show the economy could handle additional investment and lending from abroad without any risk of imbalances arising from excess external capital. This could make Estonia more attractive to foreign investors, and provide alternatives to domestic financing for investment.
Eesti Pank publishes an economic policy comment on external sector statistics, together with a statistical release on the balance of payments that covers changes in the current and capital accounts, the financial account, the international investment position, and the external debt.
Eesti Pank will release the statistics for the balance of payments and the external debt for the fourth quarter of 2017 together with an economic policy and statistical comment on 8 March 2018 at 08.00.