The current account shows domestic demand continues to be weak
Andres Saarniit, Advisor to the Economics Department of Eesti Pank
The current account of the balance of payments shows that economic growth is recovering on the back of exports and that third-quarter domestic demand was by a tenth smaller than GDP.
Although companies' profitability has improved, it has not resulted in increasing investment activity. The decrease in investment has stopped, but corporate and household savings have grown faster. Government savings increased, too, but this is characteristic of the third quarter. The growth of savings has outpaced that of investment this year, so the surplus on the goods and services account has expanded compared to the previous year.
The current account surplus, both in total and as a ratio to GDP, was smaller than a year ago. This is due to accounting reasons. Namely, in companies belonging to foreign owners, profit growth is shown as outflow of investment income even if the profit is actually reinvested in the Estonian economy. Reinvested income increased more than the surplus on the goods and services account within the year, so the current account surplus decreased.
Since domestic savings have grown more than investment, capital outflow due to expanding reserves has been predictable. However, third-quarter capital outflow was several times larger than it could have been expected looking at the ratio of savings and investment. This was caused by the investment of government reserves in foreign securities and the use of funds becoming available because of the reduction in the banks' reserve requirement to lessen debt obligations and to invest abroad.
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