Economist predicts purchasing power spike this year
Head economist at Swedbank Estonia, Tõnu Mertsina, said that salaries should increase on 2014 pace while inflation is expected to be low, meaning that purchasing power will increase.
“Ultra low inflation will bring about an acceleration to net wage increases,” Mertsina said.
“Net salary rates will be given a boost by state measures to decrease labor taxation and salary increases in the public sector. Growth in social benefits will kick an added boost to private consumption, which will be the greatest factor behind economic growth this year and next,” he said.
Swedbank is predicting two percent growth for Estonia this year.
Speaking about risks, Mertsina said that the retracting Russian economy, sanctions and weak ruble will hit Latvia, Lithuania and Finland, and that will in turn have an effect on Estonian exports.
On the other hand, Sweden, Estonia's largest export partner, is expected to grow, he said, adding that Estonia's export volumes are likely to slow.
“Cheaper fuel does increase consumption in other areas or boost peoples' savings, but the initial estimate that the effect will translate into a 1.5-percent increase to private consumption. But that is larger than the effect from the drop in the income tax rate and increase in the tax free minimum rate,” he said.