Estonian Inflation Rises Back Again in June 2008

According to the Estonian statistics office annual consumer price inflation in June 2008 was 11.4%. This is now the six consecutive month for which the consumer price index has remained around the 11% region.



Food prices were up by 15.8% and the price of manufactured goods by 7.0%. The services iprices ncreased 12.5%. Regulated prices of goods and services were up by 22.0% and non-regulated prices by 8.5%.

As in the previous months, the index was largely influenced by the increased price of food and housing, as well as by the increase in petrol prices. Dairy-, cereal- and meat products made up four fifths of the price increase of food. The increase in housing costs was mainly the result of an increase in the price of heating. Three quarters of the 14.7% price increase in the transport index was the direct result of the increased fuel cost.

The price of goods and services in June were 0.6% higher than in May. The monthly rise was mainly produced by the increase in fuel prices which was responsible for two thirds of the monthly change in the consumer price index.

Sharp Slowdown In Latvian Industrial Output in May 2008

Well the May industrial output reading is really quite a shocker, since when compared to April 2008, industrial output in May 2008 at constant prices (i.e. allowing for the influence of the price change) was down by 3.1%, according to the (seasonally adjusted data) accoring to the Latvian Central Statistical Bureau. Of this there was a volume decrease of 3.3% in manufacturing, 3,4 % in electricity, gas and water supply, and in mining and quarrying the production volume was up by 7.1%.



Compared to May 2007, industrial output in May (according to working day adjusted data) was down by 8.5%. Of which there was a volume decrease of 8% in manufacturing, a 9,6 % decrease in electricity, gas and water supply, and a 3.1% increase in mining and quarrying.




According to the statistics bureau the decrease in industrial production is related to a drop in demand and a decrease in orders in the following economic activities: food, textiles and wearing apparel, manufacture of wood, paper products, printing, chemicals and chemical products, rubber and plastic products, construction materials and furniture.

I don't know where all the people are right now who were predicting a "soft landing" (in hiding to conceal their shame I hope, or at least doing public "mea culpas" and correcting the flaws in their methodologies), but it really does look as if the Q2 2008 GDP result could be something of a shocker, if the Industrial Output readings and the retail sales data are anything to go by.



The only saving grace at this point would appear to be external trade, and this could be more of a positive element due to the statistical impact of the slowdown in import growth (caused by the drop in domestic demand) rather and real robustness in exports. Still the May 2008 extrenal trade data is due out next week, and at that point we should get a much better idea.

Exports werte up a healthy 24.7% year on year in April.



Although it is important to remember that Latvia still runs a substantial trade deficit dèspite some recent improvement.

Estonia Industrial Output May 2008

Estonia's industrial production fell the most in nine years in May, providing us with the latest evidence (following yesterday's retail sales data) that the Baltic economy has slipped into what now seems likely to become a pretty deep recession. Output, adjusted for working days, decreased an annual 6.7 percent, the biggest decline since May 1999, compared with a revised 0.1 percent fall in April, according to data from the Estonian statistics office released today. Production fell a monthly 4.8 percent on a seasonally adjusted basis.



Industrial output, led by food production and wood procession, has now fallen for three straight months.

Estonia Retail Sales May 2008

Estonian retail sales declined in May for the second time in three months, suggesting the Baltic nation's economy is on the verge of contraction. Retail sales, excluding car and fuel sales, fell an annual 3 percent, after remaining unchanged in April and declining 4 percent in March, according to the latest data from the Tallinn-based statistics office. Sales were up however when compared with April, by 4%, but we need to remember there are a great many seasonal factors at work here, and we also need to remember that in May 2007 we were at the height of the consumer boom.

Year on year retail sales reached a record 23 percent in March 2007 and then started to decline as the economy began to slow as banks tightened lending to avoid overheating as inflation accelerated. As a result the economy only grew at an annual 0.1 percent in the first quarter.


Following a gross domestic product expansion of 10.1 percent in the first quarter of 2007 we may now well see a full-year contraction this year, the first since a 0.1 percent decline in 1999, when exports dropped dramatically following the 1998 Russian default. Certainly an annual contraction in Q2 would seem to be very much on the cards at this point.



Adjusted seasonally and for working days, the economy actually shrank 0.5 percent from the fourth quarter of 2007.






Household spending which accounts for 55 percent of gross domestic product fell by an annual 0.4 percent in the first quarter, and this decline now seems set to continue, although exports, are on the upside at the present time.

In fact in April 2008 Estonian goods exports were up sharply, to 12.2 billion kroons during the month. Compared with April 2007 the increase in exports was 1.8 billion kroons or 18% in nominal (non inflation adjusted) prices. The main increases were in metals and products thereof and of machinery and equipment. This performance is promising, but it will probably be insufficient to offset the sharp decline which is now taking place in domestic demand (in particular since the Estonian government cannot run a deficit to give a stimulus), and exports may well become increasingly difficult if the economies of those who receive the exports themselves in turn start to slow.

Estonian Consumer Confidence, which was boosted by entry into the European Union in 2004, has all but collapsed after reaching record highs in January 2007. According to the Tallinn-based Konjunktuuriinstituut confidence bounced back slightly in june to -16 from the four-year low of -19 registered in May.


The EU Economic Sentiment Index for June has also now been published, and here is the principal chart for the Baltic countries. As can be see the composite index for Estonia remains steady at a very low level, while Latvia just shot below them.