Exporters are feeling stiff competition
Economist at Eesti Pank
The second half of last year was difficult for Estonian exporters. Exports were held back throughout the year by rising prices for fuels and commodities, the impact of the war in Ukraine, and falling demand. Price competition was also stiff in foreign markets. Economic uncertainty has kept the expectations of Estonian businesses for the future pessimistic, with competitiveness the main source of concern.
Data from the balance of payments show that exports of goods and services were 10% more in the fourth quarter of last year than they were a year earlier, while imports were up by 21%. Although foreign trade measured in euros has increased, the strong figures for growth are again due to persistently high inflation, which has been caused by higher prices for fuels and commodities.
Demand from Estonia’s trading partners was at a low point at the end of last year, which particularly affected the exports of Estonian manufacturers. Goods exports grew by 8.9% in the fourth quarter, but if inflation is accounted for then they actually fell. Exports were down on the year in most of the large groups of goods. The biggest contributors to growth were exports of machinery and equipment and of food products.
Imports were affected last year by the general decline in demand, and by the sanctions applied to trade with Russia. The turnover of goods imports was about 20% higher in the fourth quarter than a year previously, but most of this figure came from higher prices, and the actual volume of goods imported fell. The growth in imports was again driven by imports of mineral products, machinery and equipment, and vehicles.
Exports of services continued to grow in the fourth quarter, but there were also signs there of growth slowing down. Exports of services were up 12% over the year at current prices in the balance of payments data. Exports of transport services have contracted as expected, and they were slightly down over the year in the fourth quarter. The sector was affected by the general decline in demand, and by the drop in the trade in goods with Russia. Growth picked up for travel services in the second half of last year, but it has not yet returned entirely to its level from before the pandemic. Substantial contributions to exports of services again came from telecommunications and computer services, and other business services.
The current account was in deficit in the fourth quarter by 0.5% of GDP. The surplus on the services account gave support to the current account, while the deficit on the goods account was larger than in previous quarters under the influence of increased imports of mineral fuels and reduced exports of electrical equipment.
The opinions of businesses about the economic climate were a little better at the start of this year than at the end of last year, but their expectations for the future remain very pessimistic. Estonian businesses are most concerned about their competitiveness both within Europe and in other foreign markets.