Bank of Estonia economist Orsolya Soosaar said on Wednesday the economic crisis caused by the coronavirus replaced labor shortages with job shortages. However, the lifting of restrictions gives hope to the recovery of the service sector.
The crisis reduced the demand for labor in crisis hit sectors. "The fear of getting infected with the virus also changed people's behavior. Thus, on the one hand, the ability of companies to produce goods and services was hit, and at the same time the demand for goods and services fell," Soosaar said.
The service sector was the first to be hit hardest by the crisis and both employment and wages were growing strongly before the emergency situation was implemented.
The decline was particularly strong in accommodation and food service and cultural and leisure sectors, which were hit by restrictions on opening hours, alcohol sales and the closure of shopping malls. Demand also fell as people started working or studying from home and fears of the virus stopped people leaving their homes.In the register of employees, the number of employment contracts in accommodation and catering decreased by 15 per cent compared to the before the emergency situation.
Trade, transport and storage were also significantly impacted.
Soosaar said, so far, the lifting of restrictions gives hope for the recovery of domestic demand.
Unlike in the service sector, economic activity in the industrial sector was already slowing down before the crisis due to the cooling of the external environment.
The oil shale industry also contributed to this, which was affected by the reduced competitiveness of electricity production due to the sharp rise in the price of the CO2 quota.
Although no industrial enterprises were closed in Estonia as part of special measures, the coronavirus crisis affected the sector through supply chain difficulties and declining demand.
The real extent of the impact of the crisis on the industrial sector is still becoming clear, as it mainly depends on the extent of the decline in demand for Estonian industrial products in foreign markets against the background of the general economic downturn.
Like in many other countries, the Estonian government responded to the corona crisis with a support package consisting of various measures, the most direct impact of which on labor market developments is the wage compensation measure.
Without it, Soosaar believes, Estonia would most likely have seen much higher unemployment. Soosaar said that, as a long-term solution, such a subsidy for wage costs is neither reasonable nor affordable for the state.
"In the long run, the economy must be able to operate freely and the role of the state should be to help the economy adapt to the new conditions. Some people who have lost their jobs are unlikely to find a new job in their current field soon, and it is very important that they receive support from the state through training and other labor market measures," she said.
Editor: Helen Wright