Estonia's current-account deficit narrowed in the second quarter from a 14-year high as slower consumer spending and credit growth cut imports, suggesting the Baltic economy is cooling somewha. The deficit, which offers a braod measure of the evolution of trade in goods and services, fell to 8.5 billion krooni ($770 million) or 14 percent of gross domestic product in Q2 2007, from a revised 21.9 percent of GDP in the first quarter and 15.2 percent in Q2 2006, according to data released by the central bank today.
Estonians it seems spent less on imported cars, clothes and household goods last quarter as interest costs rose and stricter lending requirements by banks took their toll. Lower domestic demand also slowed manufacturing and construction growth, reducing the rate of GDP growth in Q2 to the lowest level in 2 1/2 years.
Exports of goods rose 6 percent from a year earlier, increasing slightly more rapidly than imports which rose 5 percent increase. Services exports climbed 19 percent, while imports went up 18 percent.
Latvia's current-account gap, which is the widest in the European Union, narrowed to 23.5 percent of GDP in Q2 2007 as economic growth there slowed too.
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Estonia’s economy is still in great shape, and it will continue to be as long as they have a free market. By the way, I just ran into a website about Estonia the other day - it is a Documentary about Estonia's Singing Revolution: http://singingrevolution.com
Hello Tanvir,
"Estonia’s economy is still in great shape"
Well I'm afraid you are virtually alone in taking this view. The consensus is, like the other Baltic countries, Estonia's economy is seriously overheating, and has severe structural issues to confront.
This, unfortunately, has nothing to do with whether it has a free economy or not, but is intimately related with the demographic trajectory. Low birth rates in the past are now producing labour shortages and very high inflation in the present. This internal inflation is then taking the cost competitiveness out of the export sector due to the euro currency peg.
This is, simply put, not sustainable. But as I say, the Baltics at present cannot correct. So they are, as it were, in the waiting room, awaiting events elsewhere, which more than likely will take the form of a more general crisis across those eastern european economies who are now eveidencing this problem as the global economy slows. My guess is that the whole show will kick off in Romania, but it is only that, an educated guess.
Meantime lets follow the data as it comes in.
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