Estonian population will decrease by 125,000 in 30 years

According to Statistics Estonia’s projection, if the current demographic trends continue, the population of Estonia will decrease by 125,000 in the next roughly 30 years due to negative natural increase and negative net migration. Thus, the projected population of Estonia in 2040 will be 1,195,000.

As at 1 January 2013, the population of Estonia was 1,320,000. If the current demographic trends continue, Estonia’s population will decrease by 4,800 persons per year (0.4%), on average. External migration and natural increase have a more or less similar impact on the population decrease.

The age-sex distribution of the population will change by 2040. The differences in the share of women and men will get smaller – on the one hand, male life expectancy will increase; on the other hand, women will continue to make up a bigger share of emigrants. The main result is that the population will age considerably. The share of persons in retirement age (65 and older) in the population will rise from the current level (18.0%) to 27.6% by 2040. The share of children (aged under 15) will fall from 15.5% to 13.6%. Overall, the dependency ratio (the number of children and retired persons compared to the working-age population) will rise from 50.9% to 70.2% – in other words, there are currently two working-age persons per each dependant, whereas in 2040 there will be three working-age persons per two dependants.

The population projection was made in cooperation with the researchers of the University of Tartu. The projection is based on fertility, mortality and migration models, using the adjusted data for 2012 as input and assuming that the demographic trends of recent years will continue.

The projection was based on the following assumptions: life expectancy will continue to increase until the level of life expectancy currently applicable to persons with higher education, whereas the difference between male and female life expectancy will decrease; there will be a slight upward trend in the number of live-born children per woman; and net migration (i.e. the difference between immigration and emigration) will remain proportionally the same as in the recent years (both registered and unregistered migration is taken into account). These trends will cause changes in absolute figures, since the shares of age groups will change: the smaller generations born in the late 1990s and at the turn of the century are reaching their 20s.

As a result, emigration and fertility indicators will decrease in absolute terms. Also, the main processes that influence population trends in Estonia – birth rates and external migration – are strongly correlated: external migration decreases the number of women in childbearing age.

Population pyramid, 2013 and 2040

Population pyramid, 2013 and 2040


Source: Statistics Estonia

Construction volumes haven’t changed

According to the preliminary data of Statistics Estonia, in 2013 the total production of Estonian construction enterprises in Estonia and in foreign countries amounted to 2.2 billion euros, which is 0.7% more than in 2012. If only the Estonian construction market is considered, the construction volumes grew 2%.

The production value of building construction was 1.3 billion euros and the production of civil engineering works totalled 897 million euros. Compared to 2012, the volume of building construction and the volume of civil engineering stayed on the level of the previous year

(the growth was 0.7% and 0.6%, respectively). The volume of the construction market in 2013 is comparable with the years 2006 and 2008, but was more than a sixth smaller than in 2007, the most successful year on the construction market so far.

The growth on the domestic construction market was mainly caused by the upturn in new building construction and was also supported by civil engineering. The repair and reconstruction work in building construction stayed on the level of the previous year

In 2013, the construction volume of Estonian construction enterprises in foreign countries decreased 13% – there was a decrease in the construction of buildings as well as in civil engineering. Construction volumes in foreign countries accounted for 9% of the total volume of construction.

The number of dwelling completions increased for the second year in a row. According to the data of the Register of Construction Works, in 2013, the number of dwelling completions was 2,079, i.e. 90 dwellings more than the year earlier. Similarly to 2012, the largest share of completed dwellings were situated in one-family, two-family or terraced houses and every second dwelling had four or more rooms. In 2013, the average floor area of a completed dwelling was 120 square metres, which is also one of the biggest in the last fifteen years. The majority of completed dwellings were situated in Tallinn, in the neighbouring rural municipalities of Tallinn and in Tartu city.

There is still a demand for new dwellings with a good location and high quality. In 2013, building permits were granted for the construction of 3,049 dwellings. Although the number of dwellings to be built grew only a little compared to the previous year, there are several new developments appearing on the market, especially higher buildings (the construction of which had practically stopped in the intervening years), which helps to abate the demand for flats in Tallinn.

In 2013, the number of completed non-residential buildings was 887 with a useful floor area of 607,000 square metres – this was primarily made up of new storage, agricultural and industrial premises. Compared to 2012, the useful floor area as well as the cubic capacity of completed non-residential buildings increased.

In the 4th quarter of 2013, the production value of construction amounted to 566 million euros, which is 4% less than in the 4th quarter of 2012, whereas the construction of buildings increased by 2% and the construction of civil engineering works decreased more than a tenth.

Construction volume index, 2000–2013 (2010 = 100)

Construction volume index, 2000–2013


Source: Statistics Estonia

Fast wage growth continues

Although wages grew continually fast, there was some deceleration in the last quarter of 2013, as we expected. In the fourth quarter gross wages grew by 7.6% YoY and by 7.8% in 2013.

Real wage growth accelerated for the sixth quarter in a row reaching 6% YoY in the fourth quarter. In 2013 real wages grew by 4.9% as a result of accelerating nominal wage growth and decelerating CPI growth.

By economic activities wage growth was quite different. The average gross wages grew fastest in agriculture and forestry and transport sector (19% and 13%, respectively). These are the sectors which inhibited the GDP growth the most, according to the recent flash estimates. Wages decreased in professional, science and technical activities. Wage growth decelerated in approximately half of the economic activities.

Although the economic growth decelerated, fast growth in labour costs has increased the unit labour cost (ULC) of total economy. According to the flash estimates, the value added in manufacturing grew faster than labour cost per employee, meaning that the growth of ULC decelerated or even decreased.

The growth of ULC has accelerated in only a few of the EU countries, by far the most in Hungary and Estonia. In Sweden and Finland wage growth has been decelerating for some time now, while in Latvia and Lithuania wage growth has been accelerating. Labour costs in Sweden, Finland, Latvia and Lithuania are growing at a slower pace than in Estonia, which means that our cost competitiveness against these trading partners is deteriorating.

Accelerating wage growth did not increase the share of labour cost in turnover and value added last year. Nevertheless, enterprises have lost their profitability and it is lower than before the crisis. Labour costs have been growing faster than productivity since the beginning of 2011.

Lack of qualified labour is the main reason behind the fast wage growth. Unemployment rate has declined below the level which causes excess wage pressures. At the beginning of 2013 minimum wages were raised by 10% which also contributed to the wage growth, especially of small enterprises with less than 50 employees. Contribution of irregular premiums and bonuses decreased in the fourth quarter. There is a cyclical effect behind the fast wage growth, as well. Normally, gross wages grew close to the GDP nominal growth. However, wage growth lagged behind the GDP nominal growth after 2009 economic crises. In spite of the economic slowdown, wages have  started to recover. Wages respond to the economic slowdown with a certain delay. Now, wage growth has exceeded GDP nominal growth already for third quarter in a row.

As the lack of qualified labour will remain a problem in the near future, the pressure to raise wages will not fade soon, either. Cyclical effect will have some effect on wages for some time, as well. As inflation is expected to stay low in this year and the next, real wage growth will be rather fast (around 4.5%).

Source: Swedbank

The average Estonian salary was 1,028 euros in December

According to Statistics Estonia, in the 4th quarter of 2013, the monthly wages and salaries increased 7.6% compared to the 4th quarter of 2012.

Compared to the same quarter of the previous year, the growth of the average monthly gross wages and salaries was slightly slower than in the 3rd and 2nd quarters when the yearly growth was 8.8% and 8.5%, respectively. Without irregular bonuses and premiums, the average monthly gross wages and salaries increased 7.2% in the 4th quarter. Compared to the 4th quarter of 2012, irregular bonuses and premiums per employee grew 17.0% and influenced the growth of the average monthly gross wages and salaries by 0.4 percentage points. Real wages, which take into account the influence of the change in the consumer price index, increased 6.0% in the 4th quarter of 2013. Compared to the same quarter of the previous year, real wages increased for the tenth quarter in succession.

The average hourly gross wages and salaries were 5.99 euros in the 4th quarter of 2013, and hourly wages and salaries increased 8.3% compared to the 4th quarter of 2012.

According to the Wages and Salaries Statistics Survey, the number of employees as at the end of December was 2.4% lower than at the end of December 2012.

Compared to the 4th quarter of 2012, the average monthly and hourly gross wages and salaries increased the most in agriculture, forestry and fishing activities – by 19.3% and 21.4%, respectively.

The average monthly gross wages and salaries decreased compared to the 4th quarter of 2012 only in professional, science and technical activities (4.4%). In the same activities, the average hourly gross wages and salaries also decreased the most (4.1%).

The average gross wages and salaries were 962 euros in October, 968 euros in November and 1,028 euros in December.

In the 4th quarter of 2013, the employer’s average monthly labour costs per employee were 1,336 euros and the average hourly labour costs were 8.69 euros. Compared to the 4th quarter of 2012, the average monthly labour costs per employee increased by 6.9% and the average hourly labour costs by 7.6%

Compared to the 4th quarter of 2012, the average monthly labour costs per employee and hourly labour costs increased the most in agriculture, forestry and fishing activities – 19.0% and 22.8%, respectively.

Compared to the 4th quarter of 2012, the average monthly labour costs per employee decreased only in professional, science and technical activities (6.5%). The average hourly labour costs also decreased the most in these activities (7.2%).

Statistics Estonia conducts the Wages and Salaries Statistics Survey on the basis of international methodology since 1992. In 2013, the sample included 11,592 enterprises, institutions and organisations. The average monthly gross wages and salaries have been given in full time units to enable a comparison of different wages and salaries, irrespective of the length of working time. Calculations of the monthly gross wages and salaries are based on payments for actually worked time and remuneration for time not worked. The hourly gross wages and salaries do not include remuneration for time not worked (holiday leave pay, benefits, etc.). In short-term statistics, the average gross wages and salaries are measured as a component of labour costs. Labour costs include gross wages and salaries, employer’s contributions and employer’s imputed social contributions to employees.

Average monthly gross wages and salaries, 1st quarter 2009 – 4th quarter 2013 (euros)
Year 1st quarter 2nd quarter 3rd quarter 4th quarter
2009 784 776 813 752 783
2010 792 758 822 759 814
2011 839 792 857 809 865
2012 887 847 900 855 916
2013 900 976 930 986

Average monthly gross wages and salaries and monthly labour costs per employee, 4th quarter 2013

Average monthly gross wages and salaries and monthly labour costs

Average hourly gross wages and salaries and hourly labour costs, 4th quarter 2013

Average hourly gross wages and salaries and hourly labour costs

Source: Statistics Estonia

Price pressures caused by labour costs

Data from Statistics Estonia show that the average gross monthly wage increased by 7.6% year on year in the last quarter of 2013, and gross hourly wages by 8.3%. Although real growth in the economy has stopped, real wage growth accelerated in annual terms to 6.0%. Real wage growth was also boosted by slower inflation. The purchasing power of households is noticeably higher than a year ago, but if wage costs grow with different trends to the economy it will put pressure on the profitability of companies and push inflation up. Average gross wage growth did slow slightly in the fourth quarter in reaction to the slowdown in economic growth, but this was not reflected in hourly wages.

Wage growth was relatively broad-based and seen in most industries, but there were still large differences. The relation between nominal wage growth and value added growth was also different in different industries. The largest rises in labour costs per hour over 2013 were of 21.4% in agriculture and forestry, 14.7% in transport and storage, 11.4% in information and communications, 11.4% in water supply and waste handling, 11.3% in finance and insurance, and 9.1% in mining, while a smaller rise of 7.5% was seen in manufacturing and there was only a slight rise in the construction sector. Nominal wages rose strongly both in sectors where growth in value added could cover them, and also in sectors where value added grew only modestly or even declined.

Wage growth was again fast in the public sector, and hourly wages rose at an annual rate of 11.7% in education and 7.5% in medicine. The wage rise for medical staff was about the same as in the second and third quarters, while the rate of wage growth in education increased. Wage growth was again affected by one-off bonuses at national and municipal level, but their impact was less than in the third quarter.

As in previous quarters, wages rose on average significantly faster than output per hour or per worker. This should not necessarily cause companies to suffer any difficulty in making payments in the short term as it can partly be compensated for by slower growth in profits or in other costs. It was indeed noticeable that profit growth slowed sharply for Estonian companies in 2013 and profits shrank as a share of GDP. Rapid wage growth will start to affect the end prices of goods and services in the long term and prices are already rising faster for many services. Prices for services are expected to rise in 2014 partly because of economic growth but largely because of higher wages and increased rental prices for residential property.

Eesti Pank observes and comments on wage developments as labour costs have a direct impact on the price of goods and services produced in Estonia and wage growth is an important indicator of price stability.

Source: Bank of Estonia

Author: Natalja Viilmann, Economist at Eesti Pank

Estonian higher education among top 200

Estonia made the top 200 of the QS World University Rankings by Subject 2014 list with three specialties taught at the University of Tartu, spokespeople for the university said on Wednesday.

The list published by the global education consultancy Quacquarelli Symonds (QS) ranks 30 specialties taught at top universities in comparison with each other.

Of Estonian universities, the communication studies curriculum of the University of Tartu maintains the highest position,51–100, while University of Tartu’s modern languages, and history and archaeology curricula are both ranked in places 151–200 on the fresh scoreboard.

Martin Hallik, vice rector for academic affairs at the University of Tartu, said the high academic level of the university was receiving continued international recognition.

“The high-performing specialties underline that we are the only university in the Baltic countries belonging in the top 3 percent of universities and 70 percent of internationally acclaimed Estonian researchers are doing their research and teaching with us,” Hallik was quoted by the spokespeople as saying.

From 2011, the QS World University Rankings also ranks universities on the basis of individual specialties. The aim of QS World University Rankings by Subject is to provide the public with comparable data on the strengths of individual specialties.

QS looks at three indicators when compiling the rankings: the reputation of universities among researchers, the reputation of universities among employers, and the number of citations in publications, using the Scopus database as source. Data on more than 3,000 universities worldwide was analyzed for the 2014 release.

Source: Estonian Review / BNS

Deposits grew by 8 pct over the year

The annual growth of the loan and lease portfolio in the Estonian non-financial sector slowed in January to 0.7%. The total volume of loans and leases to companies and households shrank over the month by 8 million euros to 14.8 billion euros.

Demand for credit was held down in January by the low level of investment activity among Estonian companies. Companies took 660 million euros in loans and leases during the month, which was 10% less than in January 2013. The January turnover of long-term loans was half the level of the previous year at 111 million euros but the turnover of short-term loans remained close to the monthly average for the last quarter of 2013. Loan turnover was higher than usual in the infrastructure sector in January.

In contrast, household borrowing in the housing loan market is growing as before. Households signed around 1300 new loan contracts in January and banks issued housing loans worth 45 million euros to them. This was 23% more than a year earlier, though it was one fifth less than the monthly average for last year. Annual growth in the housing loan portfolio reached 1% in January.

Interest rates for loans did not change much in January. Despite the small rise in the 6-month EURIBOR that serves as the basis for most loan contracts, the average interest rate on long-term corporate loans fell to 2.9% while the average interest rate on new housing loans was 2.6%.

The steady improvement in the quality of the loan portfolio of the banks halted. The stock of loans overdue for more than 60 days increased in January by around 1 million euros as the quality of the housing loan portfolio declined. Overdue loans continued to make up 1.9% of the total loan portfolio.

Annual growth in deposits accelerated in January from 5% to 8%. Deposits by households and companies grew by 76 million euros in total to 9.2 billion euros. Corporate deposits supported growth in time deposits and savings deposits.

Source: Bank of Estonia

Author: Kadri Salumaa, Financial Stability Department of Eesti Pank