The balance of payments data for the first quarter of 2006 confirm the opinion based on the monthly flash estimates that the current account deficit has started to grow again. The deficit formed approximately 16 per cent of the expected gross domestic product of the first quarter. Meanwhile, the average deficit of the last four quarters remained unchanged, reaching 12 per cent of the expected GDP.

"The positive news is that the rise in the goods exports stays fast compared to our trading partners. Thus, the growing current account deficit does not stem from a decline in competitiveness but rather from strong domestic demand, particularly investment," said Andres Saarniit, Adviser to the Economics Department of Eesti Pank.

According to Saarniit, fast growing investment bring along further extensive foreign capital inflow, which is partly offset by higher government savings. In terms of trade balance analysis, the deterioration of the external balance mainly owes to structural changes in the transit business and in the so-called outsourcing sector, which has led to an increase in stocks.

The share of direct investment in foreign capital inflow was large as usual. The total amount of direct investment into Estonia exceeded the current account deficit, being however affected by single large borrowing transactions from the parent companies. Therefore, also the gross external debt kept growing at the beginning of the year.

This year Eesti Pank expects the current account deficit to be 9.6 per cent of GDP.