The current account was slightly in deficit in the third quarter

Andres Saarniit
Andres Saarniit
Economist at Eesti Pank

In the first nine months of this year taken together, the deficit on the current account was 1.2% of GDP. This is quite close to where it was last year, when the deficit for the whole year was 1.8% of GDP. The difference between the full years promises to be small even though the current account was in deficit in the third quarter this year but was in surplus at the same time last year.

The current account deficit was around 2% of GDP of the quarter and this indicates again that external demand has been modest this year and economic growth has been based on domestic demand.

The biggest difference between the third quarter of this year and the third quarter of last year was in the surplus on the goods and services account, which deteriorated from 5% of GDP last year to 2% this year. The cause of this was increased investment activity, which generally has a negative impact on the external balance. Investment in fixed assets and inventories in the third quarter was 14% higher at current prices than in the same quarter of last year. The increase in investment is welcome from the long-term perspective, given the need to raise the potential for growth in the economy, but growth in investment in the first half of this year was worryingly slow.

As this is the last year of the European Union's seven-year budget cycle, the capital transfers to the government have been around one fifth smaller than a year earlier throughout the year, and this has also worsened the external balance.

Flows of private capital changed little and the majority of businesses owned by foreigners reinvested their earnings like before while external debt continued to be reduced. The ratio of foreign direct investment to GDP in Estonia rose slightly during the quarter and reached 87% at the end of September. As external debt continued to fall at the same time, the total net investment position was practically unchanged at -52% of GDP.

See also: The Estonian balance of payments, international investment position and gross external debt for the third quarter 2013.

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