Estonian external balance deteriorated during last year and the annual current account deficit was 1.2 per cent of GDP. In 2011, the current account had run a surplus of 2.1 per cent.
From the domestic demand side, the balance of the goods and services account shows the relationship between savings and investment. Domestic savings remained near to their level of the year before last with only a slight decrease, meaning it was the change in investments that was primarily responsible for the current account deficit. The ratio of gross fixed capital formation to GDP was around 25 per cent last year, which was larger than in 2009-2011 when it was nearer 20 per cent. The driver in this investment last year was the government sector, mainly through the sale of emission quotas and through money dispensed from the budget of the European Union. No major increase in the investment activity of the government sector is expected in future.
In contrast, the ratio of investment in fixed capital in the private sector to GDP was less than 20 per cent last year, indicating there is space for expansion. This figure is close to the average recorded in Finland over the last 10 years. The convergence of incomes suggests that Estonia should in future also see convergence of labour and the capital-labour ratio, as this indicator is only a fraction of that in older industrialised countries, and this will in turn accelerate the growth in investment in comparison to the rates in older members of the European Union. In such circumstances, an expansion of the current account deficit in future is to be expected.
Full press release
© Eesti Pank (Estonian Central Bank)
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