Economic situation has deteriorated

In Estonia, GDP fell more than expected in the third quarter, Swedbank announced in its report.

GDP declined by 1.8% over the previous quarter and 2.3% over the year. In nominal terms, GDP increased notably, by 13.9% in a year, marking very high price increases.

The change in value-added in different sectors is somewhat surprising, contradicting other data, and could, therefore, be revised later when more detailed data is compiled after the year ends. Value added increased in different professional services, construction, and tourism, but fell in agriculture, energy sector, and real estate. Value added increased in all sectors in nominal terms, but only in half of the sectors in real volumes as prices increased significantly.

Private consumption has held on relatively well, declining only by 0.4% in the third quarter, over the year, considering the significant fall in real incomes this year. Expenditure on furniture, health, clothing and footwear decreased. Household spending is supported by using savings and additional consumption by refugees (+5% of total population) and tourists. Value added in tourism exceeded pre-covid levels in the third quarter. Investments were flat in the third quarter. Corporate investment volumes decreased due to deteriorating outlook and weak profitability in several sectors. Household investments in dwellings increased significantly. Growth in exports and imports was rather modest, reflecting lower demand and higher competition in foreign markets. The majority of companies name weak demand as their biggest business obstacle.

We expect GDP volumes to decline further during the winter months. The economic situation should start to improve in the second half of 2023 when price increases normalise.

Source: Swedbank

Moderate increase in unemployment; Ukrainians 12 pct

In the third quarter, Estonia’s labor market was still strong. The number of the employed set a record, amounting to 680,000 persons, up by 3.4% in a year. The number of the employed increased in the private sector but remained stable in the public sector. Over the year, the number of the employed grew mainly in the services sector.

The registered unemployment rate has increased modestly so far, reaching 7.6% in mid-November. Ukrainian refugees made up 12.5% of the registered unemployed.

The expected recession will affect the labour market. Demand for labour is expected to decline. The number of vacancies has already decreased. The increase in the unemployment rate will remain moderate, however, as the economic downturn should be mild and short-lived. The layoffs are mainly expected in the manufacturing sector. 

The increase in unemployment should alleviate labor shortages somewhat. However, wage growth is expected to remain rapid. Swedbank forecasts an 8.5 percent increase in the average gross wage next year. Wage growth is supported by the shortage of skilled workers, higher minimum wage, wage increases in the public sector, and strong wage pressure from workers who do not want their standard of living to drop significantly due to skyrocketing inflation.

Source: Swedbank

5 pros and cons of living in Tallinn

Aure, a 28-year-old blogger from Belgium, outlines five pros and five cons of living in Tallinn, Estonia’s capital. Article by the website Estonian World.

Few countries on the planet have managed to market themselves better than Estonia – a sort of European Singapore, albeit much colder – that conjures futuristic images of a society living side by side with robots and jetting around town on magnetic trains, where everyone can found a billion-dollar start-up while not paying any tax. 

Of course, the reality isn’t exactly that. Below, he outlines a few pros and cons of living in Estonia as an expat. I write these in short and you can read the full text on their website.

Pros

1. It’s clean, and it’s safe

2. Plenty of opportunities

3. It’s the most advanced digital nation in the world with the most efficient bureaucracy

4. Healthcare is quick and (kinda) free

5. It’s rapidly growing

Cons

1. It’s hard to make friends

2. Everything is quite expensive

3. The winter

4. People don’t stay

5. It’s pretty far removed 

No country is perfect, that’s a fact. But Estonia ranks pretty high compared to most countries.

Indeed, there are many more reasons to move here, such as …, he continues:

1. No tax on corporate revenue or profits
2. No tax on cars
3. Getting by with only the English language
4. The numerous thermal baths and winter sports options
5. An excellent education and sports infrastructure
6. Saunas

Do the advantages make up for the disadvantages? It depends on what you want – if you want to work and build a future, Estonia is great. But maybe it’s not the right place if you’re looking for a dynamic social life and a lot of partying. 

However, Estonia has done a good job at attracting expats and making it easy for them to settle. 

If you’re an entrepreneur who doesn’t like paperwork, it’s a great place to move to!

Source: Estonian World

GDP nominal growth 17.8 pct

Estonia: GDP growth outlook deteriorated faster than expected in Q2

• GDP expanded only 0.6% y/y (non-adjusted), but contracted 1.3% q/q (swda) in Q2, in real terms
• GDP nominal growth was still strong at 17.8% y/y.
• The largest positive contribution to the GDP growth came from ICT sector and professional services, whereas the largest negative contribution came from manufacturing and real estate activities. 
• The growth of private consumption slowed to 4.8% in real terms, but picked up to 23% in nominal terms, the largest growth of the last 15 years.
• Total exports increased 5% in real terms with the support of the strong growth of export of services, whereas export of goods dropped in Q2. 
• Inventories were still exceptionally large in Q2 and gave a strong contribution to the GDP growth. 
• GDP has expanded 2.4% in H1 in real terms, but H2 is expected to be considerably weaker. Swedbank recent GDP forecast for 2022 is 1.7% and 0.5% for 2023. 

Read full analysis here

Value added in manufacturing dropped 9% y/y as foreign demand deteriorated and export of goods contracted in Q2.

However, total exports increased by 5% with the support of robust growth of export of services. The ICT sector, which gave the largest positive contribution to the GDP growth and has expanded permanently since mid2017, has reached the third largest economic activity in Estonia after manufacturing and trade.

Despite the deteriorated purchasing power private consumption has expanded robustly in nominal terms this year with the support of large savings, money withdrawn from the pension fund and the influence of high inflation expectations.

Swedbank expects that high inflation and weaker purchasing power will have a larger impact on private consumption with delay time.

The share of the decline in investments, which are related to the base effect from VW investments, have been recorded in the import of services and thus, have a neutral or minor impact on GDP. This effect will cease from Q3 this year.

Inventories have picked up. Primarily raw materials and merchandise purchased for resale are behind the increased inventories of nonfinancial enterprises. Swedbank expects that inventories will decrease gradually as enterprises will adjust to the changes in demand.

Source: Swedbank

Prices grew two times faster than wages

According to a report by Swedbank, prices grew two times faster than wages. Although average wage growth accelerated to 10.1% in the second quarter, it comforts consumers little when inflation was 20.2%. The average wage rose rapidly in all economic sectors. Wages grew the most in accommodation and catering (+18.6%, over the year), and in the manufacturing industry (+14.8%, over the year). There were some sectors where wage growth actually reached 20% or more, including the paper industry, R&D, marketing, and office administration.

Wage growth is supported by labour shortages, higher minimum wage and strong push from employees who do not want to see their standard of living drop so significantly due to skyrocketing inflation. Ukrainians have done little to alleviate labour shortages. So far, nearly 4,000 refugees have found a job through the Unemployment Insurance Fund (Töötukassa, in Estonian). Another 5,000 Ukrainians are still looking for a job.

According to Swedbank, the average gross wage will increase by 10% this year. Next year, wage growth will slow down to 7.5%. Due to the rapid rise in prices, the purchasing power of the average wage earner will decrease by almost a tenth this year. Next year, the average net salary should grow faster than prices again. An increase in the tax-free income from EUR 500 to EUR 654 in January 2023 contributes to this. Nevertheless, according to current forecasts, the wage earner’s purchasing power will reach last year’s level only in 2026.

Source: Swedbank

Inflation remains rapid

Consumer prices increased by 20.0%, over the year, and 1.9%, over the month, in Estonia. Prices were lifted by more expensive energy and food.

Energy accounted for two-thirds of the increase in the cost of the average consumption basket. Electricity was 146%, gas 217%, and heat energy 61% more expensive than a year ago.

Source: Swedbank

Foreign tourists have returned

According to Statistics Estonia, in February 2022, Estonian accommodation establishments served nearly 170,000 tourists, which is 70% more than in February last year. The numbers of domestic tourists and foreign tourists both increased.

Helga Laurmaa, analyst at Statistics Estonia, said that 60,000 foreign tourists and 110,000 domestic tourists were accommodated in Estonia in February. The number of foreign tourists was four times bigger than in February 2021, but it was still nearly two times lower than in February 2019. “The number of foreign tourists was comparable to February 2009, when the Estonian hotel industry was suffering from the recession. On the other hand, there were 26% more domestic tourists and their number increased slightly even compared to February 2019,” noted Laurmaa.  

For 69% of domestic tourists, the purpose of their trip was holiday, and 22% were on business trips. The biggest share of domestic tourists (32%) were accommodated in Harju county. 15% of domestic tourists stayed overnight in Pärnu county, 12% in Tartu county, 9% in Ida-Viru county and 7% in Valga county. Domestic tourists spent a total of 178,000 nights in accommodation establishments.

Read more from Statistics Estonia

Retail sales getting back to normal

According to Statistics Estonia, in March, the turnover of retail trade enterprises was 891 million euros. Compared to March 2021, turnover increased by 18% at constant prices.

Johanna Linda Pihlak, analyst at Statistics Estonia, said that, in March, the increase in turnover in retail trade was primarily influenced by stores selling manufactured goods, where turnover grew by 33% year on year. “The rapid growth in the turnover of stores selling manufactured goods was related to the fact that shopping centres were closed in March last year due to Covid-related restrictions,” explained Pihlak.

Among stores selling manufactured goods, the biggest growth at 87% was recorded in the turnover of stores selling textiles, clothing and footwear. Turnover increased by 56% in other specialised stores selling predominantly computers and their accessories, books, sports equipment, games, toys, etc., by 55% in other non-specialised stores selling predominantly manufactured goods (department stores), by 43% in stores selling second-hand goods and in non-store retail sale (stalls, markets, direct sale), by 29% in stores selling household goods and appliances, hardware and building materials, and by 9% in pharmacies and stores selling cosmetics. In March 2021, there were significantly more purchases made from online stores, while in March this year the turnover of stores selling via mail order or the internet decreased by 13%.

Compared to March 2021, the turnover of grocery stores increased by 1% and the turnover of enterprises engaged in the retail sale of automotive fuel by 22%.

Read more from Statistics Estonia

Gender pay gap was the smallest on record

According to Statistics Estonia, in 2021, the gross hourly earnings of female employees were 14.9% smaller than the earnings of male employees. The gender pay gap decreased by 0.7 percentage points year on year.

In 2021, the gross hourly earnings of female employees were 8.48 euros and the gross hourly earnings of male employees were 9.97 euros. The gap was biggest in financial and insurance activities (25.7%), followed by wholesale and retail trade (24.2%), human health and social work activities (23.8%) and information and communication (23.5%).

“As in 2020, transportation and storage was the only economic activity where women earned more than men – pay gap was 5.2%. The wage gap was small also in accommodation and food service activities where men did earn a little more than women, but the gap was relatively small – 5.8%,” said Argo Tarkiainen, analyst at Statistics Estonia.

Read more from: Statistics Estonia

The higher cost of materials raises construction prices

According to Statistics Estonia, in the first quarter of 2022, the construction price index increased by 4.6% compared to the fourth quarter of 2021 and by 19.3% compared to the first quarter of 2021.

The construction price index expresses the change in construction expenditures taking into consideration the price changes of three basic inputs: labour force, building materials and building machines. The calculation of the construction price index covers four groups of buildings: detached houses, blocks of flats, industrial buildings and office buildings. The repair and reconstruction work price index covers office buildings

Ülo Paulus, analyst at Statistics Estonia, said that in the first quarter of this year, compared to the first quarter of 2021, the construction price index was primarily influenced by the rising cost of materials, which accounted for 86% of the total index rise.

“Compared to the fourth quarter of 2021, labour force was 0.9% more expensive, the cost of using building machines rose by 3.1% and the costs of materials by 6.8%,” explained Paulus. In March, Russia’s invasion of Ukraine caused price increases in construction, as the prices of wood and wood products rose by 15.7% and the prices of metal products by 18.8%.

The repair and reconstruction work price index rose by 3.1% compared to the fourth quarter of 2021 and by 16.7% compared to the first quarter of last year.

Read more from Statistics Estonia