Growth in the Estonian economy will slow in the coming years to 2%, but the economy will continue to perform better than the average, and so 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.

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. 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.

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. 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. 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 Eesti Pank review of the Estonian economy and the update to the forecast

For further information:
Eva Vahur
Eesti Pank
Tel: 668 0965, 5330 0619
Email: eva.vahur@eestipank.ee
Press enquiries: press@eestipank.ee