Estonia continued to be a net saver, and the country’s economy was not about to overheat, Tonu Palm, chief economist at Nordea, said in his comments on the reported 5.7% GDP growth.
“The economy’s rapid growth stems from a low reference base in a situation where there has been underinvestment for years. Loan growth is not consistent with a boom, and the economy is a net saver, placing more assets abroad. Just because of two faster years, we are not back in 2007,” Palm said.
Faster growth than the European Union average meant ongoing convergence with the euro area, which raised wages and helped reduce emigration.
“What is important is that the increase in businesses’ income and wage growth occurred at the same pace. And it’s important that exports made a contribution to income,” Palm said.
A reduction in employment resulting from demographics was a factor behind wage growth, alongside rapid economic growth.
“The result is an upward pressure on prices, and subsequently the profitability of businesses will be put to a test as well. The construction sector is one of the candidates to feel the squeeze,” Palm said.
Whereas investment this year had been influenced by large single investments, it had developed on a broader base in the second quarter for the first time, Palm said.
“In a situation where the deficit of labor is growing, the possibility remains to invest in productivity,” he added.
The gross domestic product (GDP) of Estonia increased by 5.7% in the second quarter of 2017 compared to the second quarter of 2016, Statistics Estonia reported. Seasonally and working-day adjusted GDP grew by 1.3% compared to the first quarter of 2017 and by 5.2% compared to the second quarter of 2016. (ERR/Business World Magazine)
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