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Published by: Swedbank AB (publ) on Apr 14, 2014
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April 14, 2014 Please see important disclosures at the end of this document Page 1 of 545 
Macro Research - The Estonian Economy
The Estonian Economy
Estonia’s economic linkages with Russia
 
 
Russia’s share in Estonia’s foreign trade is
below 10%
 
Russia’s share in foreign investments remains small
 
 The crisis in Ukraine will affect trade and investment flows
Russia
’s share in Estonia’s foreign trade is below 10%
 
Russia’s share in Estonia’s foreign trade
is rather small, only 9% in 2013. However,
Russia’s market is more relevant for
certain sectors, like food industry and agriculture, as well as chemical and textile industries. As a source of raw materials, Russia is important for timber, furniture, chemical, and metal industries.
Russia’s market is also significant for Estonia’s exports of transport and travel
services.
Russia’s share in
foreign investments remains small
The stock of Estonia’s investment in Russia
and
Russia’s investment in Estonia
remains modest
. At the end of 2013, the stock of Estonia’s investments in Russia
amounted to 4%
in Estonia’s total investment abroad
,
and the stock of Russia’s
investment in Estonia was also 4% of all foreign investment in Estonia.
The crisis in Ukraine will affect trade and investment flows
Exports to Russia are affected not only by the decreasing purchasing power of Russians, but also by possible trade barriers. Investment flows will be smaller because investing in Eastern Europe is considered more risky and will be less profitable when economic growth in the region will be slower. If the conflict in Ukraine does not escalate and sanctions remain targeted with a modest impact, the Baltic economies are still expected to grow, albeit slower than anticipated before. Should the conflict escalate and broader trade sanctions be introduced, Estonia and the other Baltic economies will probably be hit harder
 –
 in which case a recession should not be ruled out.
Newsletter
Tõnu Mertsina +372 888 7589, tonu.mertsina@swedbank.ee Liis Elmik +372 888 7206, liis.elmik@swedbank.ee Teele Reivik +372 888 7925, teele.reivik@swedbank.ee
 
Macro Research
14 April, 2014
12%11%6%5%4%4%2%2%0%2%4%6%8%10%12%14%Share in Estonia's exports of servicesShare in Estonia's exports of goodsShare in Estonia's imports of goodsShare in Estonia's imports of servicesShare in the stock of foreign investment in EstoniaShare in the stock of Estonia's investment abroadShare in motor fuel importsShare in real estate purchases in Estonia
Russia's share in Estonia's economy
Source: Statistics Estonia, Bank of Estonia, Land Board
 
April 14, 2014 Please see important disclosures at the end of this document Page 2 of 545 
Macro Research - The Estonian Economy
Estonia’s economic linkages with Russia
 
Russia’s share in Estonia’s trade is 9% and
, in the stock of foreign investment, is only a modest 4%. Russia is an important energy source, notably for natural gas. The ongoing tensions in Ukraine will affect trade and investment flows, but if the conflict does not escalate and sanctions remain modest, the Baltic economies are still expected to grow, albeit slower than anticipated before.
Russia is an important trade partner for the Baltics
Trade with Russia is relevant for the Baltics and Finland. In 2013, Russia accounted for 6%
of Estonia’s imports of goods
and 5% of
Estonia’s imports of services. Russia’s share in Estonia’s
exports was two times higher, around 11% of the exports of goods and 12% of the exports of services. As transit goods (goods transported through the country without any value added) are not included in foreign trade statistics, the actual volume of trade from and to Russia is probably around two times higher. Transit goods from Russia to the West include oil products, grains, fertilisers, and wood, and from the West to Russia mostly vehicles and machinery. In Latvia and Lithuania, 16-20% of exports go to Russia,
while Estonia’s close ties with
Finland and Sweden make its economy somewhat less dependent on Russia. About one-tenth of Finnish exports go to Russia, but, for most other European countries, including Germany, Sweden, and Poland, the proportion of exports sent to Russia is significantly lower. Estonia mostly imports different raw materials from Russia. The most important import products are oil products, wood, chemicals, and metals. Estonia exports to Russia mainly construction machinery (often re-exports from Western Europe), electrical machinery, tanning/dyeing extracts, spirits (including re-exports from Western Europe), and dairy products.
 
0%5%10%15%20%25%30%35%LithuaniaLatviaEstoniaFinlandSwedenEU28
Russia's share in exports and imports of goods
Russia's share in imports of goodsRussia's share in
exports of goods
Source: Eurostat 26%9%9%8%4%
3%
3%
3%
35%
Estonia's exports to Russia by commodities
Machinery and equipmentElectrical machineryBeveragesTanning, dyeing extractsDairy productsPrecision instrumentsVehiclesFurniture, mattressesOther Source: Statistics Estonia
Russia’s share in Estonia’s trade is 9%
 
51%14%6%4%4%3%18%
Estonia's imports from Russia by commodities
Oil productsWood, articles of wood
Organic chemicals
Iron and steelFertilizersRail, tram vehiclesOther Source: Statistics Estonia
 
April 14, 2014 Please see important disclosures at the end of this document Page 3 of 545 
Macro Research - The Estonian Economy
Russia’s market is more relevant
not only for
Estonia’s
food industry and agriculture, but also for chemical and textile industries.
Russia’s share in
the exports of these sectors ranges between 15% and 30%. As an important source of raw materials, Russia is also relevant for the transport, timber, furniture, chemical, and metal industries. Russia
’s market
 is also significant for
Estonia’s
exports of services, especially transport (with a
share in Estonia’s exports of transport services
of 14% in 2012) and tourism (share in
Estonia’s exports of travel services
14% in 2012).
1
 A small part of the oil products imported from Russia to Estonia is consumed locally, but most of it is exported to other countries
through Estonia’s ports.
Oil products that are transported through Estonia (mostly by rail) but are not chemically processed here are not included in foreign trade statistics. Transit volumes of oil products are large, but added value in this sector is small; therefore, the impact on economic growth of the declining volumes of
oil products’
 transit is limited. It is also important to note that the volumes of
oil products’
 transport from Russia through Estonia have been decreasing for several years already for other reasons than the current crisis in Ukraine, and that this trend is expected to continue as Russia develops its own ports.  About 17% of the foreign tourists accommodated in Estonia in 2013 were Russians. Russians are the second most important foreign client group
for Estonia’s tourism
enterprises, after the Finnish (who accounted for 43% of foreign tourists accommodated in Estonia in 2013).
2
 Around 300,000 Russian tourists were accommodated in Estonia in 2013.
Russia
’s share in Estonia’s foreign
investments remains small
The stock of Estonia’s investment
s in Russia and
Russia’s investment
s in Estonia remains modest. At end-
2013, the stock of Estonia’s investments in Russia amo
unted to EUR 899 million (the
share in Estonia’s total investment
s abroad was 4%),
and the stock of Russia’s
investments in Estonia was EUR 1,241 million (mostly direct investments; the share in total foreign investments in Estonia was 4%).
1
2
 
0%5%10%15%20%25%30%35%Prepared foodstuffs; beveragesChemical productsOptical, etc instrumentsLive animals and productsTextiles Machinery and equipment Plastics and rubber Pulp of wood, paper MetalsMiscellaneous manufactured articlesVehiclesMineral productsWood and articles of wood
Russia's share in Estonia's exports
Sector's share in Estonia's exports
Russia's share in the sector 
Source: Statistics Estonia -300-200-100
0
100200300400500600700200320052007200920112013
Estonia's investment inflow and outflow from/to Russia (EUR million)
Other investment in
Estonia by RussiaEstonia's other investment in RussiaPortfolio investment in Estonia by RussiaEstonia's portfolio investment in RussiaEstonia's direct investment in RussiaDirect investment in
Estonia from Russia
Source: Bank of Estonia
-2500
-2000-1500-1000-500050010001500200320052007200920112013
Inflow and outflow of investment income of Estonia (EUR million)
Total inflow into Estonia
Total outflow
from EstoniaInflow to Estonia from
Russia
Outflow from Estonia to RussiaSource: Bank of Estonia
Russia is most important for food and chemical industries, and transport and tourism
 

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