Estonia, Producer Price Index October 2007

According to data from Statistics Estonia, in October 2007 the percentage change in the producer price index was 0.7% compared to September 2007 and 9.1% compared to October 2006.



In October 2007 the percentage change in the export price index was -0.1% compared to September 2007 and 8.5% compared to October 2006. In October 2007 the percentage change in the import price index was 0.7% compared to September 2007 and 3.8% compared to October 2006. This is all now totally unsustainable, and two graphs tell it all.






Hungary, it should be remembered, still has a long hard road out there in front of it, with no easy answers readily to hand, but at least it is one year on into addressing this particular problem. Estonia is yet to start.

Estonia Trade Balance September 2007

According to preliminary data from Statistics Estonia, in September 2007 Estonian foreign trade turnover was at a level of 23.3 billion kroons, with exports at 9.8 billion kroons (42%) and imports at 13.5 billion kroons (58%). Compared to September 2006, the exports of goods decreased by 8%, while compared to August 2007 they decreased by 5%. Compared to September 2006, the imports of goods decreased 7% and compared to August 2007 they decreased be 4%.

Compared to September 2006, total foreign trade turnover decreased 7% and compared to August 2007 it decreased 5%. The trade deficit was 3.7 billion kroons (4 billion kroons in September 2006 and 3.8 billion kroons in August 2007).

What all this means in simple language is that Estonia has been running a consistant foreign trade deficit.



and both exports and imports have been in decline of late, imports due to the slowdown in domestic demand, and exports due to the lack of price competitiveness of Estonian products. If we look at the year on year movements of the two, the downward trend is horribly clear I'm afraid.



And unfortunately, that August surge in exports looks rather like the last surge of something, at least until the issue of relative export prices is resolved, one way or another.

Estonia Inflation November 2007

First off I would like to say that despite all rumours to the contrary, I have not given up on the Baltics. Far from it. But I have been busy trying to improve my understanding of the problems, in part by looking at Romania, and even more to the point at Russia. If Mother Russia catches the Baltic illness, then we will all be in trouble, oh deary me! I have also been peering and peering into what is happening in Hungary, to try and see if anything can be learnt from finding out why Hungary is so different from the rest of the EU10, as well as what the correction in Hungary can tell us about what might happen next in the Baltics. The only definitive conclusion I can offer you is that addressing the domestic demand issue without takling the currency value question raises the danger of making any correction a very protracted and painful affair, and even then the problem may not be solved. So there are clear, and to the point, arguments for ripping off the band-aid in one foul stroke.

Well, now back to matters in hand, inflation in Estonia. According to Statistics Estonia, the percentage change of the consumer price index in November 2007 compared to November 2006 was 9.1%. On average, the prices of goods and services in November 2007 were 1.4% higher than in October 2007. The broke down into a 15.1% increase in food and non-alcoholic beverages, 13.4% for housing, 9.2% for health, and only 3.3% on household goods. Put another way, the rise in the nontradeable sector (apart from agriculture and fuel, where global prices do play a big role) carried the weight of the increase. In other sectors pressures for import substitution keep some sort of a lid on prices. As we will see in the chart, in recent months inflation - as in many other parts of the EU10 as well as in Russia and Ukraine - is now starting to climb up towards the roof.



What happens next? Well this is a difficult question to answer. Prices will obviously keep rising until they no longer can (dragged down by and inability to export and by falling domestic demand), but at the present time there is much less evidence of this in Estonia than there is in, say, Latvia, where the slowdown seems to be gathering momentum rather more rapidly.

Initiated by the dominant Swedish banks and encouraged by recent government restrictions, a supply-led credit slowdown is slowly but steadily developing into a demand-led slowdown. Private sector credit growth in Estonia slowed to 39% Y-o-Y in October, down from a 66% rate in mid-2006. In Latvia, the same measure was down to 42%Y-o-Y from 61% Y-o-Y.

The number of real estate transactions in Estonia has also fallen by 25% between Q2 and Q3 2007 to reach its lowest level for three years. So things are moving. But where? Well, watch out for more posting which should now come thick and fast over the next week, as little by little I try to work out what I myself really think about the answer to that question.

Lithuania's Economy Accelerates in Q3 2007

Lithuania's economy seems to have accelerated in the third quarter, expanding by 10.8 per cent according to a preliminary estimate from Statistics Lithuania. This is the fastest pace in four years, and the fact that the economy is gaining speed rather than slowing down must increase concern that Lithuania's economy may also be in danger of having a hard landing.

Statistics Lithuania informs that based on available statistical data and econometric models, estimated GDP for 3 quarters of 2007 totalled LTL 69946.9 million at current prices and as compared to 3 quarters of 2006 grew by 9.1 per cent (estimated using a chain-linking method in volumes of value added).

This year, the increase in the gross value added (GVA) was conditioned by the value added created by enterprises engaging in agricultural, construction, wholesale and retail trade, real estate, renting and other business, as well as transport, storage and communication activities. In III quarter 2007, GDP reached LTL 26473.5 million at current prices and, as compared to III quarter 2006, increased by 10.8 per cent. In the third, as in the second, quarter, the increase in GVA was conditioned by construction, wholesale and retail trade, transport, storage and communication, real estate, renting and other business, as well as manufacturing and agricultural activities. Value added created by agriculture reached the level of 2005 (in III quarter 2006, a 22.8 per cent decrease in value added was recorded).