In the first quarter of 2008, the adjustment has continued atan accelerating pace - the ratio of current account to GDP was 13.3%, the lowest level for two years. Along with the slowdown indomestic demand growth, the foreign trade deficit decreased by a quarter.
Thegrowth rate of goods exports was slightly above 5% which reflects adecrease in re-export year-on-year. In terms of other goods, the exportgrowth remained fast as usual and reached approximately 14% as measuredin current prices, which is 3-4 percentage points faster than theaverage level in 2007. The growth rate of services exports followed asimilar pace.
The growth rate of profits of enterprises based on foreigncapital has moderated, though it still accounts for approximately 8% of quarterly GDP. This results mainly from the contingent outflowof retained profits.
The structure of capital inflow in the first quarter of2008 has not changed much compared to the last year, according to Andres Saarniit, an adviser in the Monetary Policy Department of Eesti Pank. Investment inequity capital and direct investment in the form of reinvested earningsto GDP were even bigger than a year ago and foreign exchange reservescontinued to increase. It follows that a smaller inflow of foreigncapital is due to a slower economic growth rather than limitedfinancing, Saarniit believes.
In view of the latest data, Eesti Pank forecasts an average current account deficit at 10.2% of GDP for the whole year.