Falling Unemployment Scares Central Bank
Quickly recovering employment can be dangerous, according to Märten Ross, deputy governor of the Bank of Estonia.
The central bank revealed its fresh economic growth report on June 15 that boosted this year's forecast from 4.2 percent to 6.3 percent. The report places the unemployment rate at 13 percent for this year, 11.5 percent next year, and at 10.1 percent in 2013.
Ross said the job market has revived quicker than was expected mainly due to exports, which continue to be the country's best chance for growth. "Export has brought back industry and industry was the sector that lost the most jobs," he said.
But at a press conference, Ross warned that if employment grows too quickly, it could give momentum to unwarranted pay raises and inflation.
"The job market is a complicated mixture of good and bad news," said Ross. "On the one hand, the development of the job market has been better than we expected a year ago [...] But in some respects life is good at the central bank when unemployment does not decrease too quickly, as then we can better control the squeeze of inflation." Another problem, Ross said, would be continuing high emigration constraining the workforce.
The new economic growth forecast predicts inflation to rise by 4.7 percent in 2011, although that could drop significantly next year to a predicted 2.5 percent.
Estonia's inflation - the highest in Eurozone countries - is the result of foreign influences, Ross said. But those factors are temporary, he said, and can be soothed if the European Central Bank continues to raise interest rates.
Still, Ross said that international post-recession crises have yet to be resolved, and that the Bank of Estonia fears the emergence of domestically driven inflation.
Ott Tammik