Swedbank: Exceptionally mild winter negatively affecting economy

Swedbank logo.
Swedbank logo. Source: Priit Mürk/ERR

The exceptionally warm winter this year has had a negative effect on economic growth, says a senior economist from Swedbank.

The fall in logging activity and energy generation which the mild conditions have brought have not been mitigated by any improvements in construction or agriculture, Liis Elmik, Swedbank senior economist, said, according to BNS.

"While predicting the weather is most likely as difficult as forecasting economic growth, very warm weather also dispirits economists in addition to seals and ski enthusiasts," Elmik said in a press release, adding that record high winter temperatures also decelerate growth in added value and have a negative effect on the economy as a whole.

Energy production and oil shale mining volumes are smaller during warmer winters, which in turn pushes energy prices down, Elmik said. Energy production decreased by 25 percent on year in the final quarter of 2019, and the mining of oil shale also decreased notably.

"This (the oil shale downturn-ed.) is not only due to warm weather, but primarily a result of the EU's climate policy, which reduces the competitiveness of oil shale as a relatively heavily-polluting energy source. It is difficult for Estonian oil shale to compete with cheaper electricity from Russia and the Nordics. What lowered the price of electricity in northern Europe was warm, rainy and windy weather, which reduced energy consumption and also increased the production of wind and hydro-energy," Elmik said.

The mild winter may have improved things as far as concerns about the weather. Whereas in January 2019, 23 percent of construction businesses said bad weather was top of the list of worries, this January the figure had fallen to 14 percent.

This doesn't really translate to concrete figures in economic growth, however, which has remained small despite the warm temperatures, according to BNS.

Reduced energy production decelerates economic growth, which can only partly be compensated by other production, provided that private individuals and businesses buy other domestic products and services in greater quantities, due to their electricity bill being smaller. 

Perhaps unsurprisingly, the mild temperatures have led to a smaller amount of winter goods being purchased, though this has been compensated by high sales figure for other types of goods, as retail sales numbers as a whole remain sound, Elmik said, supported by a rapid growth in household income and optimistic future prospects.

Logging is likewise difficult in warm temperatures. Lumber supplies are sufficient at present, however, in relation to oversupply in central Europe as a result of bark beetle outbreaks, which have also been fueled by warm weather.

The lack of snow has also put several leisure activity providers in a difficult situation, it is reported. While their share of the Estonian economy is small, the lack of snow may entail a significant negative effect in regions where major sports events like international ski competitions have had to be canceled.

Despite there not having been any proper winter weather, tourist numbers remain unchanged, as the decline in Finnish visitors has been compensated by increases in other visitor segments, according to BNS.

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Editor: Andrew Whyte

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