It is becoming increasingly difficult for exporters to hold onto their market share
Economist at Eesti Pank
It is becoming increasingly difficult for Estonian exporters to hold onto the market share they have gained in recent years. The estimates of companies about the sufficiency of export orders have become more pessimistic from month to month because of weak demand in foreign markets and a deterioration in terms of trade. The competitiveness of companies is under heavy pressure in European markets and elsewhere.
Demand from Estonia’s trading partners is at a low point at the end of this year. The economies of most trading partners and of the euro area were still growing in the third quarter of the year, but the outlook has by now become more pessimistic. Although foreign trade measured in euros has increased, the strong figures for growth are due to persistently high inflation, which has been caused by higher prices for fuels and commodities. Data from the balance of payments show that exports of goods and services were 28% more than a year ago, while imports were up by 30%.
Tight price competition in foreign markets, falling demand and the sanctions imposed on Russia are all unhelpful for exports of Estonian goods. Goods exports increased by 26.5% in the third quarter, but that figure is affected by inflation of the same level, and goods exports measured at constant prices were down. The biggest contributors to the growth in exports were mineral fuels, and machinery and equipment. Exports of wood and wood products, and metal and metal products were down.
Sanctions imposed at the end of the year on goods from Russia will also affect imports of goods. Imports of wood and metal that are mainly used as raw materials have by now ceased, and imports of mineral fuels from Russia will have ended by the end of the year. Manufacturers looking for raw materials have had to move to other markets. Total imports of goods in the third quarter were some 29% higher than a year earlier. The growth in imports was again driven by imports of mineral products, machinery and equipment, and vehicles.
Exports of services remained strong, and travel services also recovered in the third quarter. Services exports continued to grow in the third quarter and gave support to the current account. Exports of services were up 32% over the year at current prices in the balance of payments data. Travel services boosted the growth in exports of services for the second consecutive quarter, as they have recovered strongly after their fall during the pandemic. Substantial contributions to the growth in exports of services again came from telecommunications and computer services, and other business services. Exports of transport services have contracted as expected, as they are affected by the general decline in demand, and by the drop in the trade in goods with Russia.
The current account was in surplus in the third quarter by 3.5% of GDP. The surplus in the services account gave support to the current account, but the deficit on the goods account was larger than in previous quarters.