The global economy has grown faster than expected in the second half of this year, and trade has revived in tandem with it. Protectionist tariffs have had less economic impact than feared and the general decline in uncertainty has boosted the recovery in the economy. This has increased demand for exports from Estonia as well, and the turnover of foreign trade was up by 8% in the third quarter. Exports increased by the same amount and imports by 7%.
Demand for Estonian goods and services has improved steadily this year in the euro area and beyond it. Developments in the economies of Estonia’s trading partners have however been in quite different directions. The Latvian and Swedish economies grew in the third quarter while the Finnish economy was still in recession, though the expectations of companies there have improved. Data from the balance of payments show that the turnover of exports of goods measured in euros was up 5% in the third quarter, while the turnover of exports of services was up 12%.
Most of the major groups of goods and destination markets saw growth in exports in the third quarter, though the growth was only moderate. The important target markets where exports of Estonian goods grew were Sweden, Poland, Germany and Lithuania. The Finnish economy remains depressed. Fewer goods were exported to the USA than a year ago, which may be partly because of the trade barriers. A positive sign this year has been that exporters are finding new markets for their goods, and the set of target markets for exports has expanded. The groups of goods that made the biggest contribution to the growth were machinery and equipment, wood and wood products, processed food products, and various manufactured products.
The economy continues to get substantial support from the growth in exports of services. Exports of services were 12% more in the third quarter than a year earlier. Growth was strong in the turnover of exports of business services, while the turnover of exports of telecommunications and computer services and of travel services also grew. Estonian companies have a strong competitive position in the market for digital services, and that has supported the growth in exports of services.
The improved performance of the Estonian economy and the increased need for investment, especially in national defence, has boosted demand for inputs and raw materials, most of which are imported. The turnover of imports of goods increased by 4% in the third quarter. The biggest contributions to this came from imports of machinery and equipment and of electronics. Goods imports have also been affected throughout the year by one-off purchases of capital goods for national defence. The turnover of imports of services also grew and was up 13% on the year.
The balance of payments showed the current account to be 117 million euros in deficit in the third quarter of 2025, or 1.1% of GDP. The current account was supported by the increase in the surplus on the services account over the year and over the quarter.
Estimates by businesses of the outlook for exports have slowly improved, but remain relatively modest. Their assessment of their competitiveness in the European market improved in the second half of the year, but they felt that they had fallen back markets in outside the European Union. This is in line with the changes that have been seen of late in the overall economic picture.
Author: Mari Rell, Economist at Eesti Pank
Source: eestipank.ee
