Construction volumes decreased in the 3rd quarter

According to Statistics Estonia, in the 3rd quarter of 2014 compared to the same quarter of the previous year, the total production of Estonian construction enterprises in Estonia and foreign countries decreased 8%. The construction volumes have decreased for four quarters in a row.

In the 3rd quarter of 2014, the production value of construction enterprises amounted to 640 million euros, of which the production value of building construction was 369 million euros and the production of civil engineering totalled 271 million euros. Compared to the 3rd quarter of 2013, the volume of building construction in real terms decreased 3% and the volume of civil engineering 14%.

The domestic construction market continues to be influenced mostly by the decrease of civil engineering volumes. In the 3rd quarter of the current year, also the repair and reconstruction volumes in building construction took a downturn compared to the same quarter of the previous year.  At the same time, new building construction continued to grow.

The construction volume of Estonian construction enterprises in foreign countries decreased about a fifth compared to the 3rd quarter of the previous year, influenced mainly by the construction of buildings. Construction volumes in foreign countries accounted for 7% of the total volume of construction in the 3rd quarter of 2014.

According to the data of the Register of Construction Works, in the 3rd quarter of 2014, the number of dwelling completions was 432, i.e. the same as in the same period of 2013. More than a half of the completed dwellings were situated in one-family, two-family or terraced houses. The majority of completed dwellings were situated in the neighbouring rural municipalities of Tallinn.

There is still a demand for new dwellings with a good location and high quality. In the 3rd quarter of 2014, building permits were granted for the construction of 945 dwellings, which is a third more than in the 3rd quarter a year ago. The most popular type of building was a block of flats.

The number of completed non-residential buildings was 181 with a useful floor area of 181,000 square metres – this was primarily made up of new agricultural, storage and industrial premises. Compared to the 3rd quarter of 2013, both the useful floor area and the cubic capacity of the completed non-residential buildings increased.

Diagram: Construction volume index and its trend

Source: Statistics Estonia

Labour force participation was high in 3Q

Data from Statistics Estonia show that employment grew by 1.1% year-on-year in the third quarter of 2014. As the working age population shrank, this means that the employment rate was 1.2 percentage points higher than a year ago. A record 69.1% of the working age population were participating in the labour market by either working or actively looking for a job while unemployed.

The growth in employment in the third quarter may have been affected by the introduction in July of the obligation to register employees, which brought employees out of the shadow economy and into official employment. Although the Estonian Labour Force Survey estimate of employment is supposed to cover everyone working, whether or not they have an official contract, responses may still be affected by people not having an official job.

The productivity of labour has risen in annual comparison in the first three quarters of this year, although more slowly than its long-term trend. Data from the Tax and Customs Board on average wages paid out suggest that labour costs grew faster than labour productivity. Productivity growth is the main driving force of economic development in the long term, and raising Estonian living standards to the level of the western members of the European Union depends on it. Eesti Pank’s forecast in September predicted that labour productivity growth will accelerate in 2015–2016 together with the recovery in the external environment. Eesti Pank will publish a new forecast in December.

Source: Bank of Estonia

Author: Orsolya Soosaar, Economist at Eesti Pank

Loans and leases of households grew by 2.1 pct

The stock of loans and leases granted to households and companies continued its modest growth in October, increasing by 3.3%. The monthly increase in such loans and leases has received more support from borrowing by households in the past two months than before. The total value of loans and leases to companies and households was a little over 15.3 billion euros in October.

The total volume of loans and leases to companies grew by 4.5% over the year to October. In monthly terms the growth in the total value of corporate loans and leases was relatively small at 12.5 million euros as repayments were large. Above average volumes of short-term loans were issued to companies in both September and October this year, while the volume of long-term loans was below its average at the same time. The largest share of new loans and leases issued in October went to companies in trade and manufacturing.

The annual growth in loans and leases to households accelerated to 2.1% in October. The total value of new housing loans isused was 80 million euros, which is 12% more than a year earlier. However there was no increase in the number of housing loans from October last year, which indicates that the growth in loan volumes has mainly come from an increase in the average value of the loans. Other loans to households have also increased in volume year-on-year for the past two months.

The continuing fall in EURIBOR led interest rates to decrease. The average interest rate for housing loans issued in October fell to 2.3% as a result of a reduction in average interest margins as well as in EURIBOR. The average interest rate for long-term loans taken by companies was 2.8% in October.

The share of loans overdue for more than 60 days accounted for 1.8% of the loan portfolio in October. This share has not changed by much throughout this year as payment problems with old loans have been resolved at the same time that new problems in repaying loans have emerged.

Corporate and household deposits continue to grow strongly, accelerating to a year-on-year growth rate of 9.3% in October. Deposits grew by 154 million euros over the month to 9.7 billion euros, with more than 80% of the growth during the month coming from increased corporate deposits. The annual growth in household deposits has remained at around 8% since the end of the first quarter. The value of non-resident deposits was almost the same as a year ago at 2.3 billion euros.

Source: Bank of Estonia

Author: Mari Tamm, Financial Sector Policy Division of Eesti Pank

Salaries up 5 pct compared to 3Q last year

According to Statistics Estonia, in the 3rd quarter of 2014, the average monthly gross wages and salaries were 977 euros and the average hourly gross wages and salaries were 5.89 euros. Compared to the 3rd quarter of 2013, the average monthly gross wages increased by 5.0% and the average hourly gross wages by 5.6%.

The average monthly gross wages and salaries without irregular bonuses and premiums increased 5.7% in the 3rd quarter. Compared to the 3rd quarter of 2013, irregular bonuses and premiums decreased 20.4% per employee and reduced the rise in average monthly gross wages by 0.7 percentage points.

Real wages, which take into account the influence of the change in the consumer price index, increased 5.6% in the 3rd quarter of 2014. Compared to the same quarter of the previous year, real wages increased for the thirteenth quarter in succession.

According to the Wages and Salaries Statistics Survey, the number of employees as at the end of September was 4.9% higher than at the same time in 2013. The increase in the number of employees was the biggest in accommodation and food service activities and in real estate activities – slightly over 14% in each.

In the 3rd quarter of 2014 compared to the 3rd quarter of 2013, the average monthly and hourly gross wages and salaries increased the most in real estate activities (by 12.8% and 13.9%, respectively).

Compared to the 3rd quarter of 2013, the average monthly gross wages and salaries decreased the most in information and communication (3.2%). The hourly gross wages decreased only in information and communication (3.6%). The irregular bonuses and premiums in information and communication decreased by 53% per employee compared to the 3rd quarter of 2013, which caused the fall in the average monthly gross wages in this economic activity. The average monthly gross wages and salaries without irregular bonuses and premiums increased by 0.9% in information and communication.

The average gross wages and salaries were 984 euros in July, 956 euros in August and 990 euros in September.

In the 3rd quarter of 2014, the employer’s average monthly labour costs per employee were 1,319 euros and the average hourly labour costs were 9.33 euros. Compared to the 3rd quarter of 2013, the average monthly labour costs per employee increased by 5.1% and the average hourly labour costs by 5.4%.

Compared to the 3rd quarter of 2013, the average monthly labour costs per employee and the average hourly labour costs increased the most in real estate activities (by 12.9% and 14.8%, respectively)

Compared to the 3rd quarter of 2013, the average monthly labour costs per employee decreased the most in information and communication (2.3%). The average hourly labour costs decreased only in information and communication (0.8%).

Statistics Estonia conducts the Wages and Salaries Statistics Survey on the basis of an international methodology since 1992. In 2014 the sample includes 11,920 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. The low monthly gross wages in education in the 3rd quarter were related to the fact that the holiday leave pay of most employees in education was reported in the 2nd quarter.

Average monthly gross wages and salaries, 1st quarter 2010 – 3rd quarter 2014 (euros)
Year 1st quarter 2nd quarter 3rd quarter 4th quarter
2010 792 758 822 759 814
2011 839 792 857 809 865
2012 887 847 900 855 916
2013 949 900 976 930 986
2014 966 1 023 977  

Read more from Statistics Estonia

Strong wage growth continues

In the 3rd quarter, average monthly gross wages increased by 5.0%, year-on-year, in Estonia. As prices declined, gross wages jumped by 5.6% in real terms.

Among sectors, in the 3rd quarter, wages increased the most in real estate, agriculture and finance compared with the 3rd quarter of last year. Wages declined in the ICT sector (due to a 53% decline in irregular bonuses and premiums per employee in this sector) and did not change in tourism.

Households’ financial situation is good and they are optimistic about their future. A survey by the Estonian Institute of Economic Research shows that in November, consumers’ economic sentiment improved compared with October. This was supported by higher income and savings as well as lower unemployment rate. A decline in consumer prices pushed real income levels further up.

Around half of the respondents felt that in a year, their financial situation would be the same; a quarter of households expected their financial situation to improve. The share of households able to save is at its highest level after the crisis. At the same time, consumption remains strong, too. The average growth of retail sales volumes was 7% in the first 9 months of 2014.

Strong wage growth will continue next year. Gross wages will increase by 6% in 2015, according to our latest forecast. Minimum wages will be raised by around 10%, while public sector’s wages are expected to be 3% higher, according to the draft state budget currently discussed in the parliament. Average net wages will be lifted by lower labour taxes. Income tax rate will decrease by 1 percentage point and unemployment insurance tax by 0.6 pp next year.

Source: Swedbank

Estonia forges ahead with its plan to let anyone become an Estonian digitally

“Over 4,000 people have registered within first 18 hours to become an e-Estonian!!!”

Estonia’s deputy secretary general for communication and state information systems, Taavi Kotka, had a few thousand reasons to cheer on his Facebook account early last month, after the launch of registration for Estonian e-residency.

Within the first 24 hours after registration was opened, interest in e-residency was shown by citizens of 168 different countries, and the amount of people signed up to be notified when the e-residency application begins grew to over 6,000.

Read more from here

Pressure on prices from wage rises is weaker than last year

The average gross monthly wage increased in the year to the third quarter at a similar rate to that seen in the second quarter, with Statistics Estonia reporting growth of 5%. Wage growth has slowed considerably since last year, partly because of a reduction in irregular bonuses and additional payments.

From the third quarter it became compulsory for employers to register employees from their first day of work and the change probably led to a fall in the number of people working unofficially. As this affected low-paid jobs to a greater extent, and as some of those who were previously working officially may still only be receiving part of their wage officially, there may have been a slight statistical reduction in the growth of the average wage.

Wage growth slowed mainly in foreign-owned companies, where wage rises were significantly larger than in the rest of the economy last year, and it also slowed in local administration. Wages have increased at the most constant rate in companies with Estonian ownership in recent years.

It was expected that the growth in average wages would slow, as rapid wage rises at a time when the economy is growing slowly lead to a reduction in the profits of companies. As companies can save on labour costs by either cutting employment or by raising wages by less, it is better for households and the economy as a whole that the adjustment come through wages. This is particularly the case when wage pressures are supported by rises in the minimum wage, collective wage agreements and competition with foreign employers. The consequence is that labour costs have risen faster than is sustainable over the long-term for the economy.

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: Orsolya Soosaar, Economist at Eesti Pank