Swedbank: Unemployment could reach 15 percent by autumn ({{contentCtrl.commentsTotal}})

Swedbank logo.
Swedbank logo. Source: ERR

While unemployment stood at 5 percent in the first quarter of 2020 (Q1 2020), as reported by Statistics Estonia, this period was mostly prior to the government declaring an emergency situation on March 12, and so does not paint the full picture of the impact of the crisis, Swedbank says. The Scandinavian-owned bank forecasts unemployment to peak in autumn, and reach a level of around 15 percent, three times the figure for Q1 2020. Many of these losses are likely to come from the section of the workforce whose employers are currently receiving wage support via the state, in response to the coronavirus pandemic. Pre-pandemic wage growth, too, is likely to have been seen off by the crisis, having been quite significant early on in the year.

"Statistics Estonia carried out the labor market survey from January to March, so the impact of the coronavirus crisis was not yet revealed in it," Swedbank said Friday, according to BNS.

"The number of people in employment increased by 9,000 in Q1 2020 compared with the same time a year ago, according to Statistics Estonia," Liis Elmik, senior economist at Swedbank, went on.

Labor force participation rate in Estonia was 71.7 percent, the employment rate was 68.1 percent, and the unemployment rate stood at 5 percent, Statistics Estonia says.

Compared with the same time last year, employment grew in the service sector both among ethnic Estonian and non-Estonian women, and specifically when it comes to part-time salaried workers, BNS adds. 

The number of unemployed registered with the Unemployment Insurance Fund (Töötukassa) currently stands at about 50,000, which is more than 5 percent, and more like 7 percent unemployment, as a proportion of the workforce, BNS notes.

Additionally, job vacancies in Estonia have dropped by about one-third during the year so far, to 4,000, according to the Unemployment Insurance Fund, reducing the pool of jobs available to those made unemployed.

In addition, over 100,000 people have received wage compensation from the state, and it is these who are likely to be hardest hit in terms of job losses between now and fall, Elmik said.

The support scheme, channeled through the unemployment fund, provides up to 70 percent of employee wages, to a maximum of €1,000. However, this is only for two months, as things stand, and since employers started claiming on the scheme as soon as it started in the first week of April, these two months will soon be up.

Ideas for what to do going forward have included calls from one opposition MP to borrow in order to continue the support.

While the emergency situation expires at midnight on Sunday, and restrictions have already started to be lifted, this does not mean things will be back to normal any time soon, Elmik went on.

"Movement and consumption have gained momentum somewhat over the past week, and the gradual lifting of restrictions has instilled optimism with business operators and households alike.

Recovery from the crisis will be painful, however. People are afraid both when it comes to their well-being, as well as potential economic difficulties," she noted.

A big factor here is the decline in exports.

According to the Swedbank forecast, as noted, unemployment will reach its peak in the fall, climbing to about 15 percent. The sectors to be hit hardest are tourism and transport – already deeply affected by the coronavirus fallout – and also industry, particularly that relying on export orders.

Of hopeful signs for the future, Swedbank says it believes the unemployment rate will start to fall again, reaching around 8 percent in 2021, i.e. slightly higher than the rate at the time of writing.

Wages, too, will decline over the same period, Swedbank says, as a result of unemployment and the economic downturn. In Q1 2020, according to the tax board (MTA), wage growth had still been quite rapid at close to 7 percent, but is likely to slow significantly in the second quarter, to almost no growth at all, at 0.5 percent.

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Editor: Andrew Whyte

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