The goods deficit widens as export growth slows
Estonian exports of goods and services have grown more slowly in the first nine months of 2018 than in 2017, and imports have grown faster. Exports may have grown more slowly not only because growth in foreign demand has stalled, but also because price competitiveness and domestic economic activity have declined. The surplus on the current account in the first nine months of 2018 was 0.7% of GDP, which is notably less than the 2.8% recorded in the same months of 2017. The current account surplus has fallen because of the deepening trade deficit, which was 985.2 million euros in the first nine months of the year, or a third larger than it was a year earlier.
Exports of goods grew at a slower rate, though the turnover of foreign trade was large, partly because of a recovery in the transit trade for fuels in the second quarter. Transit goods are only weakly related to the Estonian economy and only partially enter GDP calculations as an export. Despite good growth in the economy in the third quarter, both foreign demand and Estonian economic activity are falling and this is reflected in weakening growth for exports.
The turnover of services remained large in the third quarter, though growth in the surplus in the services account was restrained by faster growth in imports of services, as exports of services grew by 7% over the year in the third quarter and imports by 14%. The services account of the balance of payments was in surplus by 1410.7 million euros in the first nine months of 2018, which is 2% less than a year earlier. The largest part of the services surplus came from transport and travel services.
Price competitiveness continued to deteriorate at the previous rate, meaning exports of goods and services to target markets became more expensive. The real exchange rate of the euro rose by 4.7% over the year, partly because the euro appreciated against the currencies of Estonia’s trading partners like Russia, Sweden and Norway. Estonia’s price competitiveness in terms of its real exchange rate appreciation was also worsened because wages and prices are rising faster in Estonia than in foreign trading partners.
The net total of the current and capital accounts saw a surplus of 169 million euros in the third quarter of 2018, and the total surplus for the first nine months of the year was 294.7 million euros. This means that the Estonian economy continued to be a net lender to the rest of the world, so the country as a whole invested more financial assets abroad than it received from there.
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 preliminary statistics for the balance of payments and the external debt for the whole year 2018 together with an economic policy comment and statistical release on 12 March 2019.
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