Andres Saarniit, Adviser to the Economics Department of Eesti Pank

Estonia's balance of payments for the second quarter of 2010 published September 8 showed that total exports of goods posted a record high of the past year and a half. This reconfirms that the country's economic recovery is being driven by exports. The exports of services also picked up from a year ago, which was not the case in the first months of 2010. Primarily freight transport has grown in volumes, but it was still 15 per cent lower in the second quarter than in 2007 and 2008.

Foreign trade surplus accounted for 5 per cent of GDP in the first six months of 2010, which indicates persistent weak demand. The surplus has been shrinking since the end of 2009 but at a very low pace.

Transfers from the EU budget again made a significant contribution to capital flows, accounting for over 2 per cent of GDP. One-off loans from parent companies increased private sector capital inflows and temporarily stopped the downward trend of external debt. The debt-to-GDP ratio still stood at approximately 124 per cent at the end of June. Domestic savings kept growing and led to the outflow of portfolio investment. External assets increased by about 2 per cent from the first quarter of 2010.

The gold and foreign exchange reserves grew by 3.3 billion kroons, or about 6 per cent of GDP, in the second quarter. Year-on-year, the reserves have increased 7 per cent. Around 50 per cent of the increase stems from foreign trade surplus.

Although investment is likely to remain lower than domestic savings in the next couple of years, the current account surplus will start shrinking with the economy growing.

Eesti Pank Press Release September 8, 2010

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