Despite slower growth in exports, the current account is in surplus
Weakening global economic activity, the spread of protectionism, general uncertainty and obstacles to demand growth in important trading partners for Estonia all threatened seriously the outlook for Estonian exports in the first quarter. The growth in Estonia's exports of goods slowed to 4.6% at current prices, while the growth in Estonia's services exports was almost non-existent at 0.3%. The slower rate of growth in revenues from exports has not actually led to any substantial deterioration in the external balance.
Demand for exports from Estonia fell in the first quarter in Sweden, Finland, Latvia, Denmark and several other countries. Demand for imports was also down in China in the first quarter as a consequence of the trade war, and the growth in demand for imports in the US slowed significantly. The lack of clarity about Brexit meant there was a one-off increase in inventories in the United Kingdom in the first quarter, but lasting uncertainty will not help the development of long-term supply chains.
Weaker foreign demand meant that the growth in exports of goods and services from Estonia slowed in the first quarter, but it was still relatively strong. In the fourth quarter of 2018 Estonia's exports grew by 7.8% at current prices and 5.9% at constant prices, but in the first quarter of this year the exports of goods and services were up 4.9% at current prices and 4.6% at constant prices. The nominal growth in exports of services was only 0.3%. The reason for the slowdown was the drop in exports of production services and goods transport by rail services. Exports of goods held firm at the same time, growing by a nominal 4.6%. The main cause of the growth was the increase in exports of wood and wood products, machinery and mechanical equipment, and furniture.
The slower rate of growth in revenues from exports has not actually led to any substantial deterioration in the external balance. The Estonian current account was in moderate surplus in the first quarter, but the surplus declined from 1.9% of GDP last year to 1.1%. Slower growth in exports was offset by slower growth in demand for imports, as the growth in imports of capital goods fell even more than growth in exports did.
Eesti Pank releases an economic policy comment on the external sector statistics it collects and a statistical release on the balance of payments statistics that discusses changes in the current and capital accounts, the financial account, the international investment position and the external debt.
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