Ministry of Economic Affairs and Communications • Ministry of Finance ECONOMIC SURVEY OF ESTONIA 2006 Tallinn 2007 Contents Macroeconomic situation................................................................................................................................................................. 4 Labour market ................................................................................................................................................................................... 8 Foreign trade.................................................................................................................................................................................... 10 Manufacturing industry .................................................................................................................................................................. 14 Food and beverages industry ........................................................................................................................................................ 16 Textile industry ................................................................................................................................................................................ 20 Clothing industry............................................................................................................................................................................. 22 Wood industry ................................................................................................................................................................................. 24 Paper industry .................................................................................................................................................................................. 26 Publishing and printing .................................................................................................................................................................. 28 Chemical industry............................................................................................................................................................................ 30 Rubber and plastic industry........................................................................................................................................................... 32 Metal and metal products industry............................................................................................................................................... 34 Manufacture of machinery and equipment................................................................................................................................. 36 Manufacture of electrical appliances and optical instruments................................................................................................. 38 Manufacture of transport equipment .......................................................................................................................................... 42 Furniture industry............................................................................................................................................................................ 44 Construction..................................................................................................................................................................................... 46 Domestic trade................................................................................................................................................................................. 50 Tourism............................................................................................................................................................................................. 56 Transport .......................................................................................................................................................................................... 62 Transport policy .............................................................................................................................................................................. 66 Transport infrastructure................................................................................................................................................................. 66 Communications ............................................................................................................................................................................. 68 Annexes............................................................................................................................................................................................. 71 Abbreviations in the text: y-o-y – year over year r.s. – right scale EEK – Estonian kroon (1 EUR = 15.6466 EEK) * – preliminary data 4 Economic Survey of Estonia 2006 Macroeconomic situation economic growth amounted to 8.5% and 6.4%, % Economic growth in Estonia and Eurozone respectively. 14 12 Real growth of private consumption expenditure 10 accelerated remarkably in 2006 and amounted to 8 15.8%, surpassing considerably economic growth. 6 The reasons for the rapid growth were much the 4 same as in 2005 – positive developments surpassing 2 all expectations regarding the average salary, the 0 number of employed persons and the decreased 2000 2001 2002 2003 2004 2005 2006 direct tax burden. The consumers have even more Estonia Eurozone certainty about the future than in 2005, thanks to the favourable situation of employees in the labour Source: Statistical Office of Estonia, Eurostat market. This, in its turn, encourages them to take loans and to consume. No change is expected % Contribution to economic growth 25 regarding this development in the near future. 20 The developments in 2006 were characterised, as 15 10 before, by active investments ; the growth rate of 5 capital investments reached 19.7%. Investment 0 activity was the highest among enterprises. The -5 increasing demand in the domestic and foreign -10 markets and profitable real estate investments had -15 boosted the investments made by enterprises. 2001 2002 2003 2004 2005 2006 Although the increased support by the European Consumption Investments and stocks Union structural funds has significantly augmented Net exports Economic growth the investments of the government sector, the overall share of the government investments is still small and Source: Statistical Office of Estonia does not contribute much to the growth of total investments. The continued strong demand for new % y-o-y Domestic demand and imports real growth % y-o-y 25 20 living space keeps household investments at a high 20 15 level. 15 exports 10 10 In 2006, contributed twice less to the 5 5 economic growth than in 2005, regardless of the high foreign demand. The growth in goods and services 0 0 -5 imports exceeded the growth of exports. The growth -10 -5 of imports remained high due to the strong domestic -15 -10 demand. 2001 2002 2003 2004 2005 2006 The high imbalance of foreign trade escalated Imports Domestic economy demand (right scale) notably in 2006. The current account deficit grew Source: Statistical Office of Estonia from 10.5% of the GDP in 2005 to 14.8% in 2006. In 2006, Estonia’s economic growth accelerated to The build-up of the deficit compared to the previous 11.4%, surpassing the growth of 2005 (10.5%). This year was mostly due to an increase in the balance growth was significantly driven by an increase in deficit of goods. The increasing balance deficit of domestic demand which grew to 16%, based on the goods was triggered by the strong growth in goods rapid growth of both private consumption and imports which took place due to a surge in domestic investments. The contribution of goods and services demand; in the second half-year the lowered export export to economic growth lowered twice compared pace of some important export articles also had its to the previous year, to 9.1%. Goods and services effect. The deficit of income balance dropped in import grew faster than export, as a result of which 2006, mainly caused by a fast increase in income net export contributed again negatively to economic earned by Estonian residents abroad. Reinvested growth. income amounted to 97.4% of the income balance in 2006. In 2006, the growth pace of domestic demand was higher than the average economic growth (15.1%); its Domestic savings advanced remarkably in share in the GDP rose compared to 2005 and 2004–2005, reaching 24.8% of the GDP in 2005. It reached 107.4%. The increased domestic demand was was the highest during the last six years. In 2006, supported by growing private consumption and there was no growth in saving activity. The investments, the contribution of which to the diminished generation of savings of the private sector was caused both by the significant acceleration of Ministry of Economic Affairs and Communications • Ministry of Finance 2007 Economic Survey of Estonia 2006 5 consumption growth and the increased investments important factor influencing price formation also has by enterprises on loans. The boost in state budget an additional impact on the prices. revenues compared to expenditure and the increased capital costs due to the involvement of EU structural % of GDP Current account structure funding resulted in a considerable growth of savings 20 in the government sector. 10 By