Estonian Retail Sales Decline in March 2008

Estonian retail sales contracted in March when compared with March 2007, the first contraction since at least 2001, suggesting the Baltic economy may face a much more abrupt slowdown than may had been anticipating. Retail sales excluding cars and fuel declined an annual 4 percent, compared with a revised 6 percent rise in February. Sales including cars and fuel last showed a decline in November 1998, according to the statistics office database.

Clothing sales declined an annual 19 percent and sales of household goods fell 12 percent. Food sales remained unchanged, the office said.Estonian economic growth, which had been largely driven by a surge in wages and borrowing which lead to large increases in consumer spending and property investment, slowed in the fourth quarter of 2007 to a near six-year low of 4.8 percent. The central bank on April 16 forecast growth of 2 percent for 2008, expecting a contraction in the fourth quarter, while AS Hansapank, the biggest Baltic lender, forecast yesterday 2008 growth at 3.5 percent.

``Even before today's data, any hopes of a quick recovery in the second quarter looked unrealistic. Now they must have faded altogether,''
Neil Shearing, analyst at Capital Economics

Basically domestic Estonian demand is now in full retreat, government spending is having to be cut because of the "no deficit" rule, and the only positive note is exports, which means that Estonia is now ultra-dependent on the magnitude of the developing slowdown in the other EU economies.

Estonia Foreign Trade February 2008

According to the latest data fromStatistics Estonia, the exports of goods increased and imports remained on roughly the same level in February 2008 compared to February 2007. As a result the trade deficit was the smallest in two years.

In February 2008 exports in current prices were 10.4 billion kroons and imports 13.2 billion kroons. Compared to February 2007, the value of exports rose 7% and imports remained on the same level. The trade deficit was 2.8 billion kroons. The trade deficit was smaller last in February 2006 — 2.6 billions kroons. Compared to February 2007, the trade deficit decreased by about 0.7 billion kroons.


Obviously this is fairly positive news, but we need to wait and see a little what the future dynamic is going to be, since a slowdown in growth across EU countries is now clearly visible.

And Estonia is obviously now very dependent on what happens in the rest of the EU (with internal demand in Estonia now contracting) since in February 2008 the share of the EU countries was 73% (and the share of CIS countries 12%) of total exports. The most important partners in exports were Finland (17%), Sweden (15%) and Latvia (11%). Exports of goods increased to all main destination countries.



In terms of imports the share of the EU countries was 80% and that of CIS countries 12%. The most important origin countries were Finland, Germany and Sweden. Imports from the EU countries increased nearly 0.6 billion kroons as compared to February 2007. The biggest decrease was announced in the imports from Russia (0.9 billion kroons)

The foreign trade deficit with the EU countries decreased 0.5 billion kroons compared to February of the previous year. The foreign trade deficit with CIS countries decreased 0.9 billion kroons.

In both exports and imports the most important commodity section was machinery and equipment (the share was 23% for exports and 21% for imports). Compared to February 2007, the nominal increase in exports was biggest in exports of raw materials and chemical industry products(31%), agricultural products and food preparations (25%) and machinery and equipment. The exports of mineral products decreased significantly — 0.7 billion kroons or 44%. Imports increased for raw materials, chemical industry products and machinery and equipment. The biggest decline in imports was for mineral products and of wood and products thereof.

Latvian Producer Prices March 2008

Compared to February 2008, Latvian producer prices were up in March by 0.6%, according to data from the Central Statistical Bureau of Latvia. Over the year (ie compared to March 2007) producer prices have increased by 10.5%. As we can see from the chart below producer prices had been falling, but the rate of increase has now remained stubbornly flat since the end of last year. This is not good news, and especially not in the export sector, where - if you they to maintain the euro-lat peg - they need negative price increases over a period of time to restore lost competitiveness.




According to the statistics office:

Compared to February, the overall level of producer prices in March 2008 was mostly effected (by 0.4 percentage points in each activity) by the increase of the tariffs of electricity, gas, steam and hot water supply (mostly in the steam and hot water supply and in the distribution of gaseous fuels) and by the price rise in the manufacture of basic metals. However, the price decrease in the manufacture of food products and beverages (mainly in the manufacture of dairy products and cheese), in the manufacture of fabricated metal products, except machinery and equipment, in the manufacture of furniture; manufacturing n.e.c. lowered the overall level of producer prices by 0.1 percentage point in each activity.


Over the year the price increase in the manufacture of food products and beverages left the biggest impact on the overall level of producer prices, increasing it by 4.3 percentage points. The increase of the tariffs of electricity, gas, steam and hot water supply raised the overall price level by 2.0 percentage points. The price rose in the manufacture of furniture; manufacture n.e.c. increased the overall price level by 0.7 percentage points, in publishing, printing and reproduction of recorded media, in the manufacture of other non-metallic mineral products, as well as in the manufacture of basic metals – by 0.5 percentage points in each activity.

Swedbank Profit Falls On Baltic Losses

Swedbank AB, the largest bank in the Baltic region, announced today that their profit in the first quarter of 2008 dropped by a little under 1 percent when compared with the first quarter of 2007 - basically on higher costs and increasing bad loans. Their shares fell following the announcement.

Swedbank net income dropped to 2.9 billion kronor ($494 million) from 2.91 billion kronor a year earlier, the Stockholm-based bank said in a statement today. Costs rose 13 percent to 4.44 billion kronor while loan losses almost gained sixfold to 288 million kronor, the bank said.

Swedbank gets about a third of its earnings from the Baltic states of Latvia, Lithuania and Estonia. These economies had previously been among the fastest growing in the European Union, driven in part by a credit boom that sparked concern that bad debt might increase significantly during the subsequent downturn. All three economies are all now slowing quite quickly, the Latvian economy may have entered recession in the last quarter of 2007 and the Estonian central bank recently loweed its 2008 GDP forecast to 2 percent.


Swedbank shares fell 4.1 percent to 162 kronor at 9:52 a.m. in Stockholm. They have lost 11 percent so far this year.

Net interest income, the difference between what the bank makes from lending and what it pays on deposits, rose 16 percent to 5.24 billion kronor. Fee income fell 4.7 percent to 2.18 billion kronor, because of a slowdown in mergers and acquisitions in Sweden and Norway, the bank said.

Net gains on financial items fell 86 percent to 75 million kronor, because of the ``continued credit crunch in financial markets,'' said Swedbank. The fair value of Swedbank Market's credit bond portfolio declined by 187 million kronor, it said.


Swedbank is currently expanding in Ukraine and Russia in an attempt to offset slowing growth in the Baltic states and it will be interesting to watch whether or not these ventures encounter similar problems. The bank plans to open as many as 75 offices in Ukraine this year to boost volumes and increase profitability at its OJSC Swedbank unit, which the Swedish lender acquired last year. It has 200 branches, 170,000 retail clients and 18,000 corporate clients in Ukraine.

Swedbank may make acquisitions in Ukraine and Russia if opportunities arise there, Chief Executive Officer Jan Liden said in a telephone interview today. The bank believes in ``its stable base in Sweden, significant growth in the Baltic states and exciting growth in Russia and Ukraine''.

``Current economic conditions in the Baltics have affected general sentiment towards the region, however there has been no major impact on the bank's profit for the period,'' the bank said. ``Turbulence from the U.S. subprime crisis negatively affected earnings in the quarter, even though Swedbank directly or indirectly had no significant exposure to this market.''