Economist: First wave of coronavirus economic crisis already in progress

University of Tartu economist and state budget council chair Raul Eamets.
University of Tartu economist and state budget council chair Raul Eamets. Source: University of Tartu

According to economist Raul Eamets, the first wave of the economic crisis in the wake of the coronavirus pandemic is still ongoing, and the second wave will arrive in a few months. Meanwhile, head of Estonian bank Luminor said that economic crisis was here, but difficult to predict what will happen going forward. Finance minister Martin Helme (EKRE) said that the economy had been in good shape at the dawn of the crisis, meaning there is no reason to fear being able to cope in Estonia, though the global economy would face major restructuring.

"I have been in this business for over 25 years and there has never been a situation like this before," said Erkki Raasuke, CEO of the Luminor Group, speaking on current affairs show "Aktuaalne kaamera" Sunday night.

"Fundamental changes in societies have in fact already taken place, whose consequences are still beginning to be felt," said Finance Minister Martin Helme, on the same show.

"Hoping that we can get over things in a few months is probably a bit simplistic," said Raul Eamets, an economist at the University of Tartu, also speaking on "Aktuaalne kaamera".

That the emergency situation resulting from the coronavirus is leading to an economic crisis is now clear. When stock market panic heralded this, the first reports of wage cuts were already hitting people's wallets. The question, however, is how deep we fall into the pit and how difficult it will be to climb out of, the experts said.

Hotels, restaurants, culture operators, travel companies and transport companies; unless people are on the move, these sectors have no hope. 

Alongside wage cuts, there are already reports circulating of unpaid vacations and layoffs. 

Only in first wave of crisis

Raul Eamets said this was just the first wave.

"The second blow, which I think we have not had yet, unfortunately will take months, since we are an export economy - we depend on our trading partners," Eamets said.

It is not clear what the spread of the virus will do to Germany, Europe's largest economy, Eamets said. When a deeper recession comes, this will hit our major trading partners, Sweden and Finland.

"This is a kind of chain reaction that has not really started yet, but which will surely find its way into the Estonian economy," he said.

Elva major employer still getting orders

The largest private sector employer in South Estonia, Enics Eesti, based in Elva and which manufactures industrial and medical electronics and has 800 employees, exports 97 percent of its output. 

Andres Kase, the company CEO, said the first problem was that most of the components came from China, but production has stopped there.

"The supply chain and purchasing have actually been tight for almost two months, and there has been some accumulation of risks," said Kase.

While production is slowly recovering in China, efforts must now be made in Europe to ensure that goods can move regardless of emergency situations. Kase confirmed that none of their customers have canceled their orders so far, but there has been a drop in demand.

"Customers are clearly re-prioritizing. Here, the combination across the supply chain is that the focus is only on what is really needed," he said.

As demand diminishes, every company has to adapt, so for example, layoffs are not excluded in any area. At the moment, however, the organization of work is the same as elsewhere in Estonia - whoever has to be in quarantine, goes on to telework.

Luminor CEO: Economy like a river, when dammed, it dries up

Luminor Bank's headquarters in Tallinn are also empty. Bank chief Erkki Raasuke compared the economy with a river - if the flow stops, it will start to drift somewhere, and will dry up elsewhere.

"It may not have been fully apprehended yet, but all that is needed to get an economic crisis going has already happened," Raasuke explained.

The extent of the crisis is difficult to predict, Raasuke said.

"Every day the economy is held up, there are huge losses, and I think it will take days and weeks, maybe months, to make up for this," he said.

Raasuke said that the operation of the country's infrastructure - water and electricity supply, public transport - is particularly important. For a bank, the movement of payments is key. It is important that companies maintain their core business, he went on.

Finance minister: €2 billion rescue package enough for time being

Unfortunately, according to Raasuke, the crisis means that surpluses will disappear or the number of bankruptcies will start to increase, a comment also made by Finance Minister Martin Helme (EKRE).

"If this recession last longer, or runs much deeper, not only in Estonia but also in the rest of the world, then of course its impact on the economy will be worse, and it will mean structural changes in the economy, which is a nice way of putting it "said Helme.

To cushion the fall, the country came up with a €2 billion economic package - wage subsidies, revolving loans, sureties and more. This should be enough to tide things over for the time being, Helme had noted.

"I would say that in the coming months or even half a year, I see no reason to be afraid that we will not be able to cope," Helme said.

Raasuke agreed hat Estonia's economy is in good shape at the time of the crisis beginning, with little to no debt and a balanced budget. The state's behavior is sensible, and borrowing to finance crisis measures is also correct, he said.

"Here I also come back to the fact that those over the last seven or eight years who have talked a lot about the fact that we have a chance [to borrow], even though there's no idea what we're borrowing for and doing this or that - now we see that why is it good that we have not taken on that loan budren before, "said Raasuke.

New type of crisis requires new solutions

The government must also seek solutions to situations that have not required on so far. For example, Elva's Eesti Enics employs a large number of Latvian residents, who would initially have been unable to work due to the emergency situation. 

On Friday, the government decided that the cross-border work of residents of Estonia and Latvia would be allowed provided the person had no signs of illness.

"If some decisions are even incomplete or /.../ not yet finalized, they will be reviewed, the information will move on, and a new decision will be made, which is extremely important," said Kase.

But besides everyday worries, the bigger question is how much global trade is hurt, he said.

"I think the fear that has been that everything you need, one way or another, comes from China, whether it's the antibiotic components of a handwash, or the spring in the liquid soap dispenser of same, it won't arrive that way," Mart Helme explained.

"It is unlikely that we will now retreat to our villages for this, but I think this very global trade model, the trade model, must somehow get adjusted," Raasuke commented.

"This kind of growth in protectionism has already arrived, and probably it will increase, and it probably would have happened without this crisis - this virus crisis now – in any case." Eamets said.

In order to assess the situation more clearly or to hope for improvement, the virus must be brought under control, he went on.

"The sooner the quarantine is over, the faster goods will move, people will go to the store and the normal rhythm of life will be restored," said Eamets.

"In this respect, I'm still optimistic that we'll probably find a way by hook or by crook. Even if these quarantines continue in one way or another, some sort of adjustments, in a slightly different form, will still work and make returns," Raasuke said.

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Editor: Andrew Whyte

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