The current account surplus expanded by 30.6% y/y to EUR12.8m in July, according to figures of the Bank of Estonia. The improvement was driven by the services sector, where the surplus widened by 18.2% y/y to EUR232.3m. On the other hand, the merchandise trade deficit widened further by 10.8% y/y to EUR158.3m, underpinned by solid domestic demand as import growth at 7.4% y/y exceeded export growth at 7.4% y/y. In addition, the primary income deficit widened, likely due to lower remittance flows from abroad, while the secondary income turned to a marginal deficit, likely underpinned by lower investment income.
In 12-month rolling terms, the current account surplus narrowed in half by 50.8% y/y to EUR346.3m, accounting for 2.2% of nominal projected GDP for the year, according to our calculations. The merchandise trade deficit widened by 23.3% y/y to EUR990.5m, due to strong domestic demand. Meanwhile, the primary income deficit also widened, while the secondary income surplus narrowed substantially by 76.1% y/y to EUR25.1m.
On the financing side, the capital account registered an inflow of EUR480.5m, significantly higher by 75.6% y/y, likely aided by higher absorption of EU funds. In the meantime, the financial account recorded an outflow of EUR594.7m, mainly underpinned by portfolio investment as Estonians search for higher yield abroad, while other investments also contributed. On the other hand, FDI marked an inflow of EUR1.0bn, down by 22.7% y/y, but still rather solid as investments flows in the country remain strong.