The difficulties in goods exports, especially in manufacturing, that emerged in the second half of last year continued in the first half of this year. The drop in demand in the main markets for exports, problems in accessing raw inputs, and the continuing increase in production costs reduced foreign trade volumes in the first quarter. The situation is better for exporters of services to foreign markets though. Economic uncertainty is keeping the expectations of Estonian businesses for the future pessimistic, with reduced competitiveness still the main source of concern.

Demand in Estonia’s trading partners was a little better at the start of the year than is was at the end of last year, but it is still not giving enough support to goods exports. Data from the balance of payments show that the turnover of exports of goods and services was 4.2% more in the first quarter than it was a year earlier, while the turnover of imports was up by 0.8%.

Goods exports were 1% less in the first quarter than they were a year earlier, which was mainly because of the struggles in manufacturing, though the situation varies between sectors. Exports from the wood sector are struggling the most as they are hampered by weak demand in the main markets of Scandinavia and by problems with the supply of raw materials that started in the second half of last year as a consequence of Russia’s war in Ukraine. The metal industry is also confronted by similar difficulties. Exports only increased in the first three months of the year in agriculture and food goods and at businesses handling machinery and equipment.

Goods imports dropped by 3% over the year in the first quarter because fewer inputs were needed, imports of mineral fuels declined, and fuels prices were down. It was less necessary than before to buy in goods because companies had stocks of raw materials, domestic consumption was lower, and foreign demand was weak. The turnover of imports of unprocessed wood and metals and industrial goods fell in the first quarter. The drop in imports of mineral fuels also played a major part in the decline in goods imports in the first quarter.

Exports of services continued to increase in the early part of the year, but the rapid rate of growth eased a little. The turnover of services exports was 14.6% more than a year earlier and sales volumes increased. Exports of almost all groups of services increased in the first quarter, though exports of other business services and telecommunications services and computer and information services continued to take the lead. Travel services also appear to have made a full recovery. Exports of transport services, which dropped a little at the end of last year, were up over the year in the first quarter. The surplus on the current account was 0.5% of GDP in the first quarter, primarily because the surplus on the services account widened. The deficit on the goods account was smaller than in previous quarters under the influence of reduced imports of mineral fuels, wood and metals.

The continuing uncertainty in the economic space is keeping the expectations of businesses for export orders pessimistic, and estimates of competitiveness are also poor.