In the latest report on Estonia, The Organisation for Economic Co-operation and Development (OECD) predicts 2.4% economic growth in 2015 and 3.4% in 2016.
The report said that Estonia's economic growth is projected to strengthen gradually, as strong wage growth and falling unemployment will fuel private consumption growth.
„Economic activity has strengthened as exports have recovered and private consumption has grown vigorously, underpinned by real wage gains, declining unemployment and low interest rates,” it said.
However, it also highlights that exports will be held back by weak economic growth in some of Estonia's main trading partners and by losses in cost competitiveness due to high wage growth.
“Export growth will be held back by poor growth in export markets, notably Finland and Russia, which account for 16% and 11% of Estonia's exports.”
OECD predicts further wage increases for the country, in order to deal with the wage pressure from the neighboring Scandinavian countries.
“Wage increases have been driven by skill shortages, declining unemployment and an increase in the minimum wage. Job opportunities in neigbouring Finland, where wages are higher, have contributed to cross-border work and emigration, adding to domestic wage pressure,” it said.
Unemployment rate is predicted to be 7 percent in 2015 and 6.6 percent in 2016, but OECD also mentions the emigration issue. “Unemployment will fall further, but employment gains are projected to be modest due to skill mismatches and the emigration of young workers,” the report said.
OECD gives a positive assessment on the Estonian fiscal position, but recommends loosening the stance on taking loans, to finance investments in infrastructure, for example.
“The government’s financial position is strong and the fiscal stance broadly neutral. A somewhat looser fiscal stance would raise debt somewhat from its very low level, but would also finance medium term fiscal priorities, including active labour market measures, education and infrastructure spending. Further steps to reduce taxes on labour earnings, in particular on low earnings, would also raise potential growth,” the report said.