Estonia’s CA turns to marginal deficit of EUR1.1m

The current account turned to a marginal deficit of EUR1.1.m in February, according to figures of the central bank, published on Friday. The merchandise trade deficit widened considerably to EUR62.6m, underpinned by strong domestic demand, while the services surplus narrowed down by 6.5% y/y to EUR101.3m. On the other hand, the secondary income deficit shrank by as much as 80.6% y/y to EUR2.5m, likely due to higher remittance flows from abroad. The financial account reported a net outflow of EUR25.6m, underpinned by portfolio and other investment. Portfolio investment posted a net outflow of EUR41.6m as Estonians keep searching for higher yield abroad. On the other hand, foreign direct investment turned to an inflow of EUR51.8m.

In 12-month rolling terms, the current account generated a surplus of EUR389.4m, down tangibly by 44.3% y/y, and representing 1.4% of nominal projected GDP for the year, according to our calculations. The merchandise trade deficit once again widened by 16.7% y/y, while the services surplus narrowed down, in addition to the secondary income surplus, which shrank as well. The financial account reported a net outflow of EUR644.4m, underpinned by portfolio and other investment. Meanwhile, FDI continued to post inflows, at EUR1.2bn at end-Feb 2019, up by 63.7% y/y.

Looking forward, Estonia’s current account balance might deteriorate somewhat in 2019, given expectations for moderating demand among its trading partners and an overall economic slowdown in Europe, while on the other hand domestic demand is likely to remain strong.

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