Our comprehensive assessment of Estonia's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Estonia, as well as the latest industry developments that could impact Estonia's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Estonia before your competitors.
Estonia Country Risk
Although Estonia's current account flipped into surplus in Q214, the positive balance will not be experienced for long with EU economic sanctions on Russia suppressing exports and the accelerating economic recovery boosting import levels. The deficit will remain manageable in 2015 and 2016, with the services account set to remain a significant positive contributor.
The Estonian Reform PartyÂ is on course to retain first place in the March 2015 general election, boosted by its competent economic management and the hard line taken with Russia during the Ukraine crisis. The identity of the junior coalition partner is more uncertain with three parties competing for second spot, and a fractious election campaign could result in more aggressive political discourse following the vote.
Estonia Industry Coverage (10)
2014 has proved a positive year for new vehicle sales within Estonia. Over the first nine months of the year, passenger car (PC) sales were up by 5% year-on-year (y-o-y), at 15,874 units, according to figures from Estonia's association of car dealers and service companies (AMTEL). September's monthly performance was highly impressive, up 19% y-o-y, at 1,841 units for the month.
On the commercial vehicle side, 8M14 figures from the European Auto Manufacturers Association (ACEA) show a total of 1,884 light commercial vehicles (LCVs) sold in country, with a further 508 medium and heavy commercial vehicles sold, plus a further 79 buses, for a total of 2,471 units sold year-to-date.
Adding the 2,471 CV units to the 14,033 PCs sold over 8M14 makes for a total new vehicle market of 16,504 units. On current sales trends, this leaves the Estonian new vehicle sales market on target to hit BMI's forecast of...
Food & Drink
Estonia Food & Drink
BMI Industry View
The Estonian retail sector remains positive and is planning further expansion of both ranges and premises during 2015, with mass grocery retail players being no exception. The country's economy has turned a corner and will post relatively strong real GDP growth over the next two years. Although Estonia's unemployment will fall at a slower rate, household incomes will continue to increaseÂ and this rising domestic demand will more than offset lower export growth, as relations with Russia remain strained.
Headline Industry Data
2014Â per capita food consumption (local currency): +2.04%; forecast compound annual growth rate (CAGR) to 2018: +2.06%.
2014Â alcoholic drinks sales (volume): -0.39%; forecast CAGR to 2018: +0.54%.
2014Â soft drinks sales (volume...
Estonia Freight Transport
Estonia registered a 0.4% year-on-year (y-o-y) rise in GDP on a seasonally and working-day adjusted basis in Q3 2013, according to preliminary data released by Statistics Estonia (RTT News). This followed the 1% increase in GDP registered in Q2 2013. Economic growth was driven by the trade sector and supported by stable growth in retail trade.
Although headline growth in 2013 will fall short of the robust levels achieved over the past three years, Estonia's rapid and ongoing recovery from severe recession following the global financial crisis in 2008 continues to drive improvements in the domestic economy. Formerly propelled by growth in exports and fixed investment, the shape of growth in coming quarters will be weighted towards private consumption, propping up economic activity until external demand gradually recovers.
With one of emerging Europe's best business environments and balanced growth in both goods and...
BMI Industry View
BMI View : Improving optimism in the private household sector and the consequent rebound in the residential and non-residential building segment will help drive average growth of 3.8% year-on-year (y-o-y) in the Estonian construction sector between 2014 and 2023. Meanwhile, the contribution of the infrastructure sub-sector in the overall construction industry value growth will be negligible as dearth of government funding will limit transport and energy projects in the country.
Our core view for the Estonian residential and non-residential construction sub-sector envisages growth averaging over 5% y-o-y between 2014 and 2023, which will help the sub-sector account for 74.7% of the total construction industry value by the end of the forecast period - compared with its share of 66.1% in 2013. Although...
BMI View : Estonia's life insurance segment enjoys a high retention ratio and good profitability. However, growth in the segment will be constrained in the coming years due to market saturation. Over the 2015-2018 period, we forecast the non-life segment to outperform on the back of strong demand for property insurance and a steady increase in healthcare spending.
Estonia's life sector makes up only 20% of the country's insurance sector and we expect it to remain an underperformer over the coming years. This is due to challenges such as a significant number of low income households which are unable to afford life insurance as well as the lack of its usage as a savings tool. At the same time, there were 829,040 life insurance contracts in-force as of the end of Q214 according to the Financial Supervision Authority (FSA). We believe this highlights a certain level of market saturation as most...
Estonia Medical Devices
BMI Industry View: Â The medical device market is set to grow at a higher CAGR between 201 3 and 201 8 than was recorded for the 2008-2013 period. However, the small size of the market limits scope for the purchase of more expensive items. The medical device market is largely supplied by imports, principally from Western suppliers. The balance of trade has been positive since 2011, due to export growth . There is a small domestic production sector but this tends to concentrate on exports to Western Europe and former Soviet countries .
Pharmaceuticals & Healthcare
Estonia Pharmaceuticals & Healthcare
BMI View: Against a backdrop of GDP contraction in Q114, Estonian pharmacy sales posted considerable growth, driven by demand for over-the-counter medicines and an uptick in prescriptions written. Private consumer spending will continue to bolster pharmaceutical sales in 2014 as wage growth continues. Despite this data, Estonia will continue to remain a marginal market in the Central and Eastern European region. Â Whether or not a fiscally conservative policy in healthcare spending can survive Estonia's ageing population and the subsequent growth in demand for medicine is highly dependent on broader macroeconomic trends. Nevertheless, there are also potential rewards in the market. Any growth in demand for medicine is highly dependent on unemployment levels and the raising of premiums by the HIF.
Headline Expenditure Projections...
In the ports and shipping sector, competition from the new Russian Baltic port of Ust-Luga has been a negative for Estonia's port of Tallinn. But despite uncertainty on this front Tallinn has been coping well and diversifying its business. Tonnage at the Estonian port fell by an estimated 4.2% in 2013 and, we now expect it to register small but positive growth in 2014. The port authorities have claimed that a policy of diversification will eventually begin to pay off: we expect moderate growth in container activity levels in 2014.
Recovery To Gather Pace in 2015, Russia Permitting
Relative to our last quarterly report, we have downgraded our forecast for GDP expansion in Estonia this year, although we see the recovery gathering pace in 2015 and 2016. GDP came in below expectations in Q1 2014, contracting by 1.2% on a year-on-year (y-o-y) basis. The biggest drag on growth appears to be net...
BMI View: Â Estonia's telecoms sector is one of the most developed in the region, particularly with regards to the deployment of advanced next-generation wireline and mobile broadband technologies and services. However, its small geographical size and relatively closed nature means that new entrants have very few opportunities to develop their businesses and this has the potential to hamper innovation in the field of new solutions and services. Eesti Telekom continues to dominate virtually all aspects of the electronic communications services market and the regulator's reluctance to open up the broadband infrastructure access market still further means that the situation is unlikely to change in the medium term. That said, we believe pressures are mounting on the fragmented cable TV sector to...
BMI View: Â Overall we maintain our outlooks for the Baltic states' tourism sectors over 2015. Although the countries stand to lose out due to the ongoing issues (both economic and political) arising from the Russia-Ukraine tensions, and this will constrain arrivals from these countries, we believe that these losses will largely be mitigated by increased inter-regional tourism within the three Baltic states, as well as from other European countries which increasingly view the Baltic region as a more stable alternative to Russia and Ukraine. In particular we feel that Lithuania's tourism sector could see substantial growth over the longer term if its bid to join the euro is successful, as it will facilitate multilateral tourist traffic from and to the eurozone . Â
One of the main developments over 2014 has been the advancement of the proposal to...