Ministry: Estonian economy’s consistent growth will continue in the coming years

Copy
Please note that the article is more than five years old and belongs to our archive. We do not update the content of the archives, so it may be necessary to consult newer sources.
Photo: Elmo Riig / Sakala

According to the spring economic forecast of the Ministry of Finance, the driving force of Estonian economic growth this year is domestic demand, supported by quickening export growth starting from the second half of the year. The Ministry estimates this year’s economic growth to be 3 percent, to be increased to 3.6 percent in 2014.

Although the European Union and the euro zone are in recession and latest forecasts tend to be corrected downwards, the improving outlooks of Estonia’s export partners and little direct economic dependence on Southern European countries allow for a more optimistic assessment of several indicators of Estonian economy as compared to the forecast from last summer.

Domestic demand will increase during the forecast period, supported by gradual restoration of investment levels. Decrease of public sector investments this and during a couple of future years is expected to be balanced by quick growth of company investments into machines and equipment which exceeded its latest peak already in 2012.

The willingness to consume has increased as well, thanks to improving employment levels and growing real income. Private consumption is also supported by the upcoming reduction of income tax rate in 2015. On the other hand, households borrowing behaviour will probably not change significantly in the coming years and thus there will also be no growth of the loan burden to increase consumption, enabling household’s loan ratio to the GDP to continue its decrease.

Estonia’s exports will follow the economic growth of foreign markets in coming years. Exports of goods and services will increase by 4.5 percent this year, will quicken to 6 percent in 2014 in coordination with the recovery of foreign demand, and will stabilise below 7 percent in the subsequent years. 

Consumer price increase will slow down to 3.4 percent in 2013 and will remain at 2.8 in the subsequent years. Deceleration in inflation is the result of decreasing impact coming from foreign factors due to the weakness of global growth, expressed as stabilisation of fuel prices and slowdown of heat price growth. Additionally, the effect of the opening of the electricity market will recede next year, facilitating a decrease in inflation. 

In relation to slowdown of consumer price growth, real wage growth will increase in the coming years, reaching 2.5 percent this year and quickening to 3.5 percent in 2014. Growth of average salary increased to nearly 6 percent in 2012 and should remain at that speed in 2013 as well. Wage growth is caused by expected recovery of export markets and low levels of available labour force.

Labour force’s contribution to economic growth is starting to decline. 0.3–0.4 percent increase ofemployment rate is to be expected this as well as the next year. However, the number of employed people may then stop growing due to demographic reasons. Unemployment rate is forecasted to drop to 7 percent in 2017 and employment rate is expected to increase to 64 percent which is nearly 1 percentage point above the latest peak of 2008.

Due to an improved macroeconomic outlook, the indicators of public finance have become more positive as well. The forecast promises this year’s government deficit to be 0.5 percent of the GDP, and structurally (the position without one-off factors and considering the economic cycle’s effect) there will be a surplus of 0.3 percent of the GDP. The deficit of the coming years can be covered from reserves.

The spring economic forecast of the Ministry of Finance is used as a basis for the State Budget Strategy and Stability programme with which the government adopts the fiscal policy principles of the next four years, including the public sector fiscal position targets for the coming years.

Comments
Copy
Top