Bank of Estonia: Each week of restrictions shrinks economy by 0.5 percent ({{contentCtrl.commentsTotal}})

The Bank of Estonia building in Tallinn
The Bank of Estonia building in Tallinn Source: Siim Lõvi /ERR

A forecast by the Bank of Estonia shows with each week of restrictions imposed by the emergency situation the economy is estimated to contract by 0.5 percent.

The economic crisis has so far affected services businesses and the transport sector the most, the bank said, but how much the economy shrinks by will depend on how long the restrictions last in Estonia and elsewhere, and how well companies are able to survive the crisis.

The forecast predicts the economy will shrink by 6 percent if the restrictions arising from the emergency situation are eased, for example, at the beginning of May. 

But if the restrictions were to remain in place throughout the summer and ease at the beginning of August, for example, the economy could shrink by as much as 14 percent.

Every additional week that restrictions apply, the bank estimates economy will decrease by 0.5 percent.

If the situation eases quickly, the Estonian economy could rebound quite quickly and growth may be fast next year. If the restrictions remain in place for longer, the economy will recover more slowly.

Ülo Kaasik, Deputy Governor of Bank of Estonia, who addressed the members of the Economic Affairs Committee of the Riigikogu on Tuesday, said if the economic downturn lasts longer, more and more social problems will arise that the state must alleviate.

In the case of companies, the Bank of Estonia believes it is worthwhile to focus on providing short term and urgent support, as it will help people and businesses to survive with the crisis.

"It makes sense to prepare for the provision of longer-term assistance under the government's second aid package. However, the central bank believes that decisions should be made only if it is clear that the restrictions will remain in force for longer than initially planned," the bank said.

The bank expects the restrictions and the crisis to hit hardest in the following areas:

  • Tourism and travel services, as people become more cautious and recommendations are given to cancel or postpone travel, or travel is even prohibited to certain areas.
  • Exports and imports and production, as foreign demand declines in countries that have been affected more by the virus. Hold-ups in international supply chains will also have a harmful impact.
  • Private consumption and investment, as a rapid rise in the number afflicted, could lead people to postpone spending in order to avoid the risk of infection or because of general uncertainty, and companies to limit their investment. 

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Editor: Helen Wright

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