Banks, Deposits, Estonia, Financial Services, Investments

The surplus was driven by the positive balance of the services account as exports of services exceeded imports, and by the net inflow of secondary income from European Union Structural Funds and fines.

The surplus in services was 505 million euros, which was 15% more than in the second quarter of 2016. The surplus was mainly increased by travel, computer and construction services. The net outflow of investment income was 266 million euros, which is 50% more than in the same quarter of the previous year. This came mainly from the reinvestment of profits earned in Estonia by foreign direct investors. The goods deficit increased by 30% to 319 million euros.

Exports of goods were up by 4% compared to the second quarter of 2016, while imports were up by 6%. The growth in exports was affected mainly by increased exports of mineral products including oil shale, while the growth in imports was driven by imports of transport vehicles. The surpluses in secondary income and on the capital account were boosted by a substantial increase in European Union investment support.

The financial account of the balance of payments shows that investment abroad from Estonia was 171 million euros larger than investment in Estonia from abroad. The net capital outflow was again a consequence of investments in foreign securities by pension funds. The net outflow of investment through the banking system, which covers credit institutions and the Bank of Estonia, was 136 million euros and occurred through growth in client deposits, which allowed banks to reduce their own foreign liabilities.

Growth in deposits emanated from the current account surplus, as increased exports resulted in a greater inflow of funds to companies, which held them in banks operating in Estonia. The growth in general government deposits was affected by the Structural Funds received from the European Union. Unlike in the first quarter of 2017, the inflow of direct investment exceeded the outflow. The inflow of investment increased because non-financial companies and credit institutions reinvested the profits they had earned in Estonia.

The net international investment position at the end of the second quarter of 2017 showed that the external liabilities of Estonian residents exceeded their external assets by 7.5 billion euros, or 34% of GDP. During the quarter the investment position moved in the direction of net balance by 146 million euros.

Statistics for the external debt show that at the end of the quarter, the debt claims of Estonian residents on non-residents were 2.5 billion euros, or 12% of GDP, larger than their debt liabilities. Debt assets increased during the quarter, while external liabilities decreased.

Estonian investments abroad in the past quarters have continued to focus on securities and loans. Investments of pension funds and loan transactions within groups of companies make up the largest share. The Bank of Estonia's purchase of 449 million euros worth of securities in the second quarter do not affect external balance as the requirements of other investments by the bank will decrease as a result of this. Overall, more assets were moved abroad from Estonia than to Estonia from abroad. This has been a customary direction in the past few years, the reasons of which must probably be sought from the lack of attractiveness of the local investment climate.