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

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