The Bank of Estonia: growth in the economy will slow; the economy still to perform above average

According to the Bank of Estonia, the country’s central bank, growth in the Estonian economy will slow in the coming years to two per cent, but the economy will continue to perform better than average.

The central bank said in a news release that it would be a mistake to pamper it further by running a deficit in the general government budget. “Any such deficit would heat further the already overheated labour market and would reduce the competitiveness of the exporting sector,” the bank said.

“Output will be above its average level this year and next few, and unemployment remains below average, bringing the state more income tax and consumption tax than usual,” the Bank of Estonia pointed out. “If the budget is to help keep the economy stable, the tax revenues that depend on the economic cycle should not be spent in full. The budget should be in nominal surplus and structural balance in the years ahead for more stable economic growth to be achieved.”

Unemployment almost at boom level

The labour market has offered positive surprises in recent years as large numbers of people have joined the labour market and job seekers have found employment, according to the central bank.

“The unemployment rate has steadily fallen and has by now reached 4.4%, which is almost the same as the record low recorded in 2008 during the boom,” the statement noted. “As the labour shortages in Estonia are still pushing labour costs upwards strongly, it is above all companies that serve foreign markets that are finding it harder to compete.”

The outlook for the whole economy depends on the performance of exports, however, as exports of goods and services are roughly three quarters of the value added created in the economy, the bank added.

The government deficit at 0.5%

According to Statistics Estonia, the country’s statistics agency, in 2018, the Estonian general government deficit was 0.5% and the gross debt level was 8% of the gross domestic product.

At the end of 2018, the total expenditures of the general government exceeded the revenues by €120.2 million, the agency said.

The consolidated debt of the general government amounted to slightly over €2 billion by the end of 2018, having decreased by about 1%, compared with 2017.

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The cover image is illustrative.