The current account surplus narrowed by 17.4% y/y to EUR23.8m in January, according to figures of the Bank of Estonia, published on Monday. The services trade surplus narrowed by 13.0% y/y to EUR107.4m, underpinned by strong domestic demand. Meanwhile, the merchandise trade deficit narrowed by 44.4% y/y to EUR36.7m, while the secondary income balance turned to a deficit, likely due to lower remittance flows from abroad. The financial account reported a net inflow of EUR14m, underpinned by portfolio and other investments. On the other hand, foreign direct investment reported an outflow of EUR21.7m.
In 12-month rolling terms, the current account posted a surplus of EUR440.5m, lower by 40.1% y/y, and representing 1.6% of nominal projected GDP for the year, according to our calculations. The merchandise trade deficit widened by 11.0% y/y to EUR942.8m, while the services surplus narrowed by 3.9% y/y to EUR1.8m. The financial account posted an outflow of EUR738.8m, driven by portfolio investments as Estonians keep searching for higher yield abroad and also by other investments. On the other hand, FDI posted an inflow of EUR1.1bn, almost double compared to the 12-month period ending in January 2018.
Looking forward, Estonia’s current account balance might deteriorate in 2019, given expectations about 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.