Analytics, Baltic Export, Estonia, EU – Baltic States, Foreign trade

"The faster increase in labor costs than productivity increase that has been going on for a longer time has undermined the price based competitiveness of Estonian businesses. Even though the gap between the rates of increase in labor costs and productivity has narrowed, this only means that the decrease in businesses' price based competitiveness has slowed down," Mertsina said in a press release.

"In the longer view of things, the value added of goods has increased, which at least partially offsets the decrease in price based competitiveness. Price convergence means that the advantages that Estonian goods and services have due to lower prices will decrease or have already disappeared in some places. This in its turn will make companies engage in product development and increasing productivity even more," said Mertsina.

The market share of Estonian products in the Nordic countries has increased.

"Last year, 39% of Estonia's exports, including 44% of the export of goods, went to Finland, Sweden, Norway and Denmark. The Finnish market alone accounts for approximately one-fifth of our exports," the economist said.

In 2017, 1,775 companies exported goods from Estonia to Finland. That number equals approximately a quarter of all exporting companies. The corresponding figures for Sweden were 1,133 and 15%, for Norway 1,074 and 15%, and for Denmark 536 and 7%. When it comes to the number of companies, the five top categories of goods were the same for all the four countries: machinery and equipment, wood, plastic and black metal products, furniture, and electrical equipment.

Mertsina also pointed at the benefits of diverse exports in hedging risks. The export of Estonian goods is the most diverse to Finland, as the top five categories of goods accounted for 21% of 1,210 goods altogether exported to that country, and the top categories of goods held relatively similar shares.

In the case of Norway and Sweden, the five top goods accounted for 46%, with mobile devices accounting for 31% of exports to Sweden and prefabricated houses for on-site assembly for 20% of exports to Norway.

Export to Denmark was very concentrated -- the five top categories of goods accounted for 61% of total exports to that country, and firewood accounted for 30% of the export of goods, Swedbank said.

The euro is the predominant currency of settlement in exports to the Nordic countries. In 2017, the Swedish krona was used as the currency of settlement only in 7% of export transactions concluded with parties in Sweden. In exports to Norway, the Norwegian krone was used in 11% of transactions and the euro in 87% of transactions.

In exports to the four Nordic countries combined, the euro was the currency of settlement in 95% of the transactions on average. Even though growth in Estonia's exports to the Nordic countries slowed down in the first quarter of this year, demand in the region is expected to remain strong in the near term.

"The increase in export turnover related to the Nordic countries has been slowing down in the past two quarters. Where exports to Finland continue strong, goods exports to Sweden, leaving aside mobile devices, have been on a decline already for two quarters. Also Estonia's exports to Norway declined in the first quarter," Mertsina said.