The growth in corporate and household debt is still slower than the growth in the economy
Economist at Eesti Pank
The indebtedness of the companies and households that make up the Estonian private sector, which is shown as the ratio of debt liabilities to GDP, shrank notably in 2018 to 112% at the end of the year as nominal GDP grew quickly. The debt burden of the Estonian private sector was seen as too large 10 years ago and after the economic crisis, but its current level is better aligned with the core indicators for the economy, especially incomes.
Estonian companies borrowed mainly from banks operating in Estonia in 2018, and the growth in such loans was around 6%. As borrowing from abroad and elsewhere was more modest, and at the end of the year several large companies bought back bonds that they had issued, the total corporate debt increased by only 1%. Further growth in debt will depend principally on how much companies invest. Reduced investment should mean that the indebtedness will decline further, but this would harm the capacity of the economy for further growth.
The growth in loans to households was relatively fast in 2018, but data from recent months indicate that the rate of growth has slowed a little. The majority of the growth came in housing loans and car leases taken from banks. The stock of loans taken from other creditors also increased, but remained a fairly small part of all debt liabilities at 6%.
The Estonian economy was a net lender to the rest of the world last year, and the net outflow of financial assets was 860 million euros, which is over 3% of GDP. Since 2009, Estonian residents have put more funds abroad than they have taken in from abroad. The main difference from the previous decade is that Estonian households are saving more and companies are investing less. The position as a net lender means that the indicators for external debt and the international investment position are improving.
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