The current account surplus remained large given the background of the rest of the economy
- The surplus on the current account was smaller than it was a year previously
- The inflow of direct investment continued thanks to individual sectors
- Pension funds are setting the tone for foreign investment from Estonia
The main features of the Estonian economy in the second quarter were growth in investment in fixed assets, and a recovery in profits. Larger investments led to an increased need for imports and the recovery of profits increased the income earned in Estonia by foreign investors. The current account surplus was smaller in consequence than a year ago at 108 million euros, which is around 1.9% of GDP. The surplus might have shrunk even faster, but several factors restrained this. Stocks that had been built up earlier were partly used up rather than imports being increased, the surplus on the services account remained large, and the overall level of investment still remains low. The current account was also affected positively by greater use of resources from the European Union Structural Funds. Experience from previous funding periods of the European Union suggests that the use of subsidies will be even more intensive in the years ahead.
More direct investment was made in Estonia than was made abroad from Estonia. Larger parts of the investment that came into Estonia in the second quarter went into information and communication, but some also went into finance and the trade sector. Investment in these sectors was driven by one or two large transactions, and it is understandable that for a small country such transactions would have a major effect on the balance of payments. The inflow of direct investment into manufacturing was more evenly distributed between companies, but it was smaller than the amount of investment in the other sectors. The largest part of the investment still comes from the reinvestment of profits, and increasing profits mean that the Estonian economy will gain more from this in the years ahead. It would help make the economy more broadly based and attractive if direct investment were also to flow into new companies, but the data of the balance of payments do not suggest that this is the prevailing trend.
Investment by Estonians abroad has in recent quarters been focused in securities and loans. A large share of the investment is investment by pension funds and intra-group loan transactions. The purchases of securities by Eesti Pank, which were 449 million euros in the second quarter, do not affect the external balance, as the other investment assets of the central bank were reduced accordingly. Overall more was invested from Estonia abroad than came in to Estonia from abroad. This has generally been the case in recent years, and the reason for this is probably that the local investment climate has not been very attractive.
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 third quarter of 2017 together with an economic policy and statistical comment on 7 December 2017 at 08.00.
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