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BNS - Estonia's current account deficit last year almost halved in comparison with 2007 and equaled 9.2 percent of gross domestic product (GDP), compared with 17.4 percent in 2007, the Bank of Estonia said on Monday.
In absolute terms, the deficit for 2008 totaled 22.9 billion kroons, according to the report based on preliminary data.
The contraction of the current account gap was especially pronounced in the second half of 2008, primarily because of the decline in the net outflow of income. Measuring 3.3 billion kroons or 5.5 percent of the period's GDP, the current account deficit in the fourth quarter of 2008 was the lowest in three years.
The whole-year deficit on goods and services, or the direct components of GDP, was 4.3 percent, expressed as a ratio to GDP. Total exports of goods and services grew 7 percent, whereas imports shrank 2 percent. Consequently, the deficit on goods and services decreased 60 percent.
The deficit fell across all current account components, particularly on account of a decrease in the deficit of the goods account. Net capital inflow decreased substantially, occurring mainly in the form of direct and other investment.
The improvement in the current account was supported by exports, which remained strong until last fall.
Andres Saarniit, adviser at the central bank, observed that the gap has been narrowing since mid-2007, when economic growth started to slow down as a result of lower domestic demand. Also the foreign trade deficit has been declining since 2007.
The deficit on the goods account of the balance of payments for 2008 stood at 28.6 billion kroons and equaled 11.5 percent of GDP. Compared to 2007, the foreign trade deficit shrank by a third, that is, by 13.4 billion kroons. The export of goods grew 6 percent year-on-year and totalled 133.7 billion kroons in current prices; while imports declined 4 percent to 162.4 billion kroons.
The central bank said that the reduction in the current account deficit happened in every way as expected. Despite the slowed-down investment activity and reduction in foreign investment there was enough money moving in Estonian economy and there were no financing problems.
Since the economic indicators for late 2008 and the first months of 2009 refer to a further reduction in domestic demand, also the current account gap is set to keep narrowing as a result.
Of posititive signs it stands out in the current account dynamics for 2008 that in the year as a whole official transfers from the European Union increased by nearly 40 percent (gross), the central bank said.
This shows that these cash flows are emerging as one of the main factors balancing the current account in the near term.
(EUR 1 = EEK 15.65)
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