“First half-year in industry and trade: winners and losers”

Based on the first half-year, Estonia’s industrial output is trending downwards. Bigger sectors in terms of employee numbers and production output have outperformed others. Retail trade continues to grow apace, but is balanced in terms of growth in wages and deposits.

Today, Statistics Estonia published its data for retail trade and industry sales figures from June, allowing the first half-year to be wrapped up and the question to be asked: How are Estonian businesses doing?

First, industry: unfortunately, June did not bring a positive surprise, and the volume of Estonia’s industrial output is showing a negative trend. Growth in output, reaching a couple of percentage points in the first months of the year, stalled in April, with the index slipping into negative territory by 3 per cent in June. In recent months, a negative contribution in this respect has been made by energy production: production volumes for the electricity and hot water supply sector contracted by 3 per cent in the first quarter and by 17 per cent in the second. On balance, the volume of industrial output in the first half-year was at the same level as in the first half-year of 2014.

Based on the first half-year, the processing industry is still in positive territory, by one percentage point; however, there, too, production volumes have shown a year-on-year decline in recent months. Remarkably, major industrial sectors, which employ more people and contribute the lion’s share of industrial output, have fared better.

Manufacture of fabricated metal products and timber processing, the biggest industrial sectors in terms of people employed, posted positive growth in output volumes compared to the first half-year of 2014 – of 4 and 7 per cent, respectively. Another key employer, the food industry, although on balance in negative territory by one percentage point in the first half-year, did show surprisingly robust growth in the subsectors of meat and fishery products. In both quarters, there was 5 per cent growth in the output of the furniture industry, which also employs a lot of Estonians. Slightly smaller in terms of employment, yet quite significant in terms of its production output volume, for the first half-year the electronics industry posted an increase in its production volume of a whopping 11 per cent, albeit mostly from the first quarter. However, in most of the other sectors, smaller in terms of production output and employee numbers, industrial output decreased. Per se, the better-than-average performance by industries important for Estonia should be considered a positive: it shows that in the areas where we are strong success is possible also under the conditions of weak external demand. At the same time, this concentration of incomes in a few sectors also clearly increases risks, as a result of which broad-based recovery in growth is badly needed.

Unlike industry, retail trade is showing no signs of slowing down. Whereas the year-on-year increase in retail sales was 6 per cent in April and 8 per cent in May, it was a whopping 10 per cent in June. On balance, sales volumes as adjusted for changes in prices increased by 8 per cent in the first half-year. Up until now, consumption has been driven by rapid growth in real wages, which was 5.4 per cent in the first quarter. The wage statistics for the second quarter will not be published until 1 September; however, it is most likely that growth in real wages for that quarter, too, will amount to 5 per cent. Just to reassure those dreading another consumption boom, it should be pointed out that private individuals’ bank deposits are growing at the same rate. Since the beginning of 2014, households’ deposits have been rising at a stable rate of 8 per cent.

Retail sales have increased fastest for goods ordered by post or online. As indicated by this week’s news about the closure of the big mail order operator Anttila, shopping is mainly shifting online, no matter what. Whereas at the moment online trade is pushing out of business its direct competitors selling goods through the old-fashioned mail order catalogue, it will likely not be long before many other retail operators, too, will have to start revising their business model. Among others, Estonian sporting goods retailers and several supermarket chains have now also set about developing their online shops aggressively. Given that online trade is an international business, one has to hope that it has not been too late a start.


Mihkel Nestor
Economic Analyst, SEB


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