CA surplus widens to EUR65m in Estonia

The current account surplus widened to EUR65m in December from EUR12.1m a year ago, according to data published by the central bank on Monday. The biggest contribution came from service surplus, which increase by 20.5% y/y, underpinned by the strong performance of the domestic tourist sector. The merchandise trade deficit narrowed by 4.4% y/y because of the 6.3% y/y increase of exports, which was underpinned by the stronger demand from Finland. At the same time, merchandise imports went up by 5.0% y/y mostly due to the solid household consumption. The primary income deficit decreased to EUR36.6m due to noticeable growth of residents’ income from abroad.

The capital account turned to a EUR7.1m net outflow, suggesting that the absorption of EU funds has still not gathered pace. In the meantime, the financial account net outflow rose by 9.9% y/y to EUR150.6m on the back of higher portfolio investment net outflows. FDI net inflows rose, but remained low because of the declining FDI inflows, which were likely influenced negatively by the collapse of the previous government. However, the currently ruling coalition seems stable, so we do not expect the domestic political environment to continue to impact negatively foreign investments. Other investments run a EUR26.8m net inflow, compared to a EUR10.3m net outflow in Dec 2015. This reflected the fact that the significant decline of asset inflows offset the outflows decrease.

Looking at 2016 figures, the current account surplus widened to EUR553.1m (2.7% of GDP), compared to EUR446.9m (2.4% of GDP) in 2015. The merchandise deficit rose by 4.2% y/y on the back of the 2.9% y/y growth of imports. On the other hand, the services surplus went up by 3.7% y/y, influenced by the higher inflow of foreign tourists. On the financing side, the financial account ran EUR493.3m net outflow, compared to EUR1.0bn net outflow a year ago. This almost entirely reflected the EUR1.6bn net inflow of other investments, which more than offset the significant growth of portfolio net outflows.

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