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Swedbank: Robust imports holding back economic growth

Swedbank Estonia chief economist Tõnu Mertsina.
Swedbank Estonia chief economist Tõnu Mertsina. Source: (Siim Lõvi/ERR)

While Estonia's export outlook for the next few quarters is good, import being stronger than export is curbing economic growth, Swedbank chief economist Tõnu Mertsina said in his comments on April export and import data on Friday.

"Although solid export growth continued in April when adjusted to the number of workdays, the effective input of export to the economy was nevertheless negative," Mertsina said in a press release. "If we add to it the growing import of goods, increased trade deficit held back economic growth even more than usual in April."

He noted that it is characteristic of the Estonian economy that when economic growth picks up, the trade deficit increases. "The reason for this is businesses' bigger demand for both manufacturing inputs and investment goods," he explained. "When increases in real wages and residents' sentiment support consumption, the import of consumer goods will also increase."

Mertsina said that it is expected that both output volumes and investments will increase this year, while private consumption is set to decrease this year and start picking up again next year as a result of the increase in the basic exemption.

"External demand has been gaining strength and workday-adjusted growth numbers demonstrate that businesses continue to be able to raise their export turnover," Mertsina observed. "At the same time, it is the increase in export prices that largely stands behind the gains in export turnover."

External orders of the electronics industry dropped 43 percent on year in April and the output and export volumes of that sector will likely remain on a decline in the near term, according to the economist.

The export of Estonian goods grew the most to Germany and the Netherlands. "Judging by the first four months of this year, Finland should be added to that duo," Mertsina said. "The improved outlook for the Finnish economy helps improve our exports there." The biggest decline took place in exports to Sweden, as a result of the drop in electronics output.

"The economic growth of European countries has been quite robust of late considering the new normal, so to speak, which has increased external demand," he noted.

In the coming few quarters, external demand is expected to remain strong and export prices are expected to grow, supporting increases in businesses' export turnovers, Mertsina said. "Estonian industrial companies have become increasingly confident when it comes to their export outlooks," he noted. "In the second quarter, the relevant confidence indicator rose to its highest level in the past six years and now stands above the long-term average— the average for 10 and 20 years. This confirms once again that the export outlook for the near term is good."

Exports of goods from Estonia decreased by one percent and imports of goods to Estonia increased by two percent on year in April, Statistics Estonia said on Friday. A decline in the export of electrical equipment significantly contributed to the drop in exports.

Exports from Estonia amounted to €1 billion and imports to Estonia to €1.2 billion at current prices. The trade deficit was €189 million, up from €158 million in April 2016.

Editor: Aili Vahtla

Source: BNS

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