The appreciation of the U.S. dollar, which reached parity with the euro this week, will affect commodity prices, first and foremost those of fuels, but considering the general increase in energy carrier prices, the impact of the exchange rate will nonetheless be limited, experts told ERR on Wednesday.
"Naturally this has a twofold impact — positive on Estonia's exports, negative on imports, i.e. the weakening of the euro's exchange rate will be a win for exporters but a loss for importers or those whose production inputs are dependent on imports," Peeter Luikmel, head of the Bank of Estonia's Monetary Policy and Foreign Economics Division, told ERR on Wednesday. "But the [overall] impact will ultimately be modest compared with the increase in energy prices."
Luikmel explained that according to rough estimates, some one fifth of the change in the exchange rate will reach inflation.
"While producers could typically smooth over such price increases caused by a change in the exchange rate at the expense of their margins, that's more difficult right now due to the general increase in prices and the prevailing sentiment that prices can be increased," he said.
"But at current inflation figures, the impact of the change in the exchange rate has nonetheless been imperceptible because the increase in energy prices has had a much more significant impact," he added.
Swedbank chief economist Tõnu Mertsina likewise said that the U.S. dollar going up can't have too substantial of an impact, as the vast majority — even up to 90 percent — of Estonia's foreign trade settlements are conducted in euros.
According to Mertsina, the U.S. dollar is used for certain product groups, such as mineral fuels, and in part in the machinery and equipment as well as electronics trade. Goods such as 5G equipment produced at Ericsson's Estonian plant and exported to the U.S. may likewise be sold in U.S. dollars, he added.
He acknowledged that the U.S. dollar going up may impact Estonia via more expensive imports, but added that the weakening of the euro in relation to the dollar should conversely benefit exporters who trade in U.S. dollars.
Swedbank's chief economist also highlighted the sale of motor fuels, where fuel retailers in 2020 justified not reducing fuel prices after the price on the global market fell with the fact that the U.S. dollar went up in relation to the euro.
LHV analyst Heido Vitsur likewise stressed that the fall of the euro in relation to the dollar will be reflected first and foremost in the prices of commodities, which are sold in U.S. dollars on the global market.
While the typical exchange rate is estimated at €1 = $1.20, the two currencies reaching parity essentially means an increase of approximately one sixth in fuel prices, Vitsur said.
Early this month, the exchange rate between the euro and U.S. dollar reached its lowest point in the past 20 years.
Fifth of Estonian trade conducted in dollars
According to data published by Statistics Estonia analyst Jane Leppmets, approximately one fifth of Estonia's foreign trade was conducted in U.S. dollars, with dollars even accounting for slightly more trade in exports than imports.
In 2021, 78 percent of Estonia's import value was in euros, 20 percent in U.S. dollars and 2 percent in other currencies.
Of last year's export value, meanwhile, 75 percent was in euros, 22 percent in U.S. dollars and 3 percent in other currencies.
Of imports, 64 percent of trade in mineral fuels, mineral oils and products of their distillation is conducted in U.S. dollars, as is 21 percent of trade in electronic machines and equipment, recording equipment, TV equipment and their parts, and 11 percent of trade in nuclear reactor, boiler, machine and mechanical equipment and their parts.
Of exports, 72 percent of trade in the same mineral fuels group is settled in U.S. dollars, as is 37 percent of trade in the electronics group and 36 percent of trade in the iron and steel group.
Editor: Aili Vahtla