Swedbank raised Estonia’s 2017 real growth forecast by 1.3%, to 3.5%, and next year’s forecast by 0.4%, to 3.2% in its latest economic outlook.
In April the bank estimated that Estonia’s gross domestic product growth would total 2.2% this year, and 2.8% in 2018. The newly revised forecast is a lot more optimistic, though the number for 2019 is lower again at 2.7%.
Foreign demand was expected to remain robust in the next two years. In addition to the positive impact on exports, this increased the need for business sector investments, as capacity utilization in the industry had already risen above its long-term average, the bank said.
After a slowdown this year, the growth of private consumption will likely accelerate again in 2018. Swedbank forecasts that next year the Estonian economy will grow by 3.2%, and in 2019 by 2.7%. At this stage of the growth cycle, Estonia didn’t need stronger fiscal stimulation, the bank said.
Consumer price growth was expected to accelerate to above 3% in 2017 due to higher commodity prices and a surge in excise tax rates. Strong wage growth would drive the prices of services. The growth of the average wage in real terms was expected to slow substantially this year, as nominal growth of wages would be somewhat slower and prices would rise.
The substantially slower growth of wage-earners’ purchasing power would be compensated for to some degree by an increase in social transfers. In 2018, wage-earners’ labor income would increase again, due to a substantial increase in their non-taxable income. This change in taxes could also lower their wage expectations for next year, Swedbank said.
Wage growth would remain relatively high due to the shortage of suitable labor. The higher economic activity was driving employment in 2017. In 2018, employment was expected to remain at around this year’s high, as the labor supply would be limited despite the growing demand for labor, according to the bank. (ERR/Business World Magazine)
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