Estonian analysts differ about short-term nominal wage growth outlook

Photo: Arvo Meeks / Lõuna-Eesti Postimees

Analysts of Estonian banks hold different opinions about nominal wage growth in the near term - while SEB Pank and Swedbank experts predict continued growth of around 7 percent analysts of LHV Pank and Nordea believe growth will slow down in coming quarters.

"With regard to nominal wages, I expect growth to continue at a rate of nearly 7 percent in coming quarters. As inflation is decelerating the growth of real wages also will improve slightly," SEB Pank analyst Ruta Arumae told BNS.

"It's also good for the health of the economy that wage growth was equal in the private and the public sector, and that wage growth in the sector with lowest pay was among the fastest," she observed.

"Although wage growth is highly welcome so as to prop up consumer purchasing power and economic growth, it remains higher than productivity growth over the same period," Arumae noted.

"The wage growth rates did not offer any surprises," Swedbank's chief economist Tonu Mertsina said. He noted that growth rates of 10 percent and more were recorded in real estate and other service activities and the energy sector. In the first quarter monthly gross wages and salaries were the highest also in the energy sector at 1,551 euros.

"Wage growth was slowest in foreign private law enterprises - 4.9 percent," Mertsina observed but added that those companies' wage level is more than a fourth higher than the Estonian average.

Relatively fast growth of average pay has various implications for the Estonian economy, said Heido Vitsur, expert at LHV Pank. "Firstly, it means that one of our principal competition advantages, relative cheapness of labor, will diminish. But faster pay growth also means less incentive for labor to leave Estonia which is far from unimportant," he explained.

"Given the continued global economic downturn and long-drawn-out recession in the eurozone, I don't think wage growth can continue here at the same rate and that it will gradually slow down in the following quarters, which may not be welcome but is important for the future," Vitsur said.

"Slowdown of economic growth this year will inevitably cool companies' turnovers, profits and, with a certain delay, also wage pressure. However, in my view demand for labor will stabilize rather than decline this year. So, if gross wage growth throughout the year averaged 5.5 percent or so, real wages would receive additional support from decelerating price rise," chief economist of Nordea Pank Tonu Palm told BNS.

Monthly gross wages and salaries in Estonia averaged 900 euros in the first quarter of 2013, up by 6.3 percent against the same period of the previous year, Statistics Estonia said on Friday. The average hourly gross wages and salaries were 5.63 euros, 9.1 percent higher than the year before.