TALLINN - Hansabank analysts are welcoming the recent weakness in the price of oil on global markets as they believe it marks an especially beneficial development for small country economies like Estonia's.
The decline in oil prices is definitely positive, Hansabank Markets macro analyst Annika Paabut said but added that its impact in itself depends on how lasting the fall is or, in other words, how stable oil prices will be in the near future keeping in mind future transport costs.
"Estonia does not itself produce oil, it has to be imported, and importing at lower prices means it also can be sold at lower prices. Falling gas prices thus place consumers in a better position, as transport expenses are not going to swallow such a large part of their income," Paabut says.
Furthermore, oil prices have a considerable effect on domestic inflation as outlays on transport are connected with the prices of goods and services, the analyst said.
Stabilization in the price of oil should after a certain delay serve to stabilize the prices of other goods, resulting in a substantially slower inflation rate as the impact of changes in administratively regulated prices will also decrease, Paabut predicted.
The head of Nordea Bank's analysis department Sander Klaos agrees, and adds that oil and fuel prices have had a stronger impact on inflation in Estonia than in the so-called old European countries, and therefore the price drop will reduce the difference between inflation rates and raise Estonia's competitiveness in European markets.
"As fuel prices and inflation decline, local consumers will gain confidence, which could boost household consumption of other goods and services and thereby support economic growth," Klaos observed.
At the start of this year a barrel of oil cost around 96 U.S. dollars a barrel on world markets. Oil hit an all-time record just above 147 U.S. dollars a barrel on July 11, but has recently slid back to trading at around 125 U.S. dollars a barrel.