According to an economic growth forecast issued by the Bank of Estonia, the Estonian economy is expected to see a negative economic growth of 10 percent on year this year due to the global coronavirus pandemic — but only if new restrictions are not introduced. According to the central bank, the economy will not see pre-crisis levels restored until mid-2022.
According to the Bank of Estonia, the economy has already begun to recover following the relaxation of restrictions, but this will take time. Effects of the crisis will reach several sectors with a delay, some restrictions on activity have remained in place following the conclusion of the emergency situation, and consumers have been cautious with their spending.
In 2021, expected economic growth is forecast to temporarily reach 8.5 percent as the economy recovers from the lowest point of the crisis, but the economy's pre-crisis volume will only be restored by mid-2022. The fact that both the Estonian and the global economy were already cooling ahead of the crisis will hinder a more rapid recovery.
Getting the novel coronavirus under control and lifting restrictions in Estonia will not preclude economic problems, due to which it remains necessary to ensure preparedness to handle them.
According to the central bank's forecast, just over two thirds of this year's negative economic growth will be attributable to a reduction in external demand, and one third to restrictions in place in Estonia. Various countries are lifting restrictions and exiting the low point of the crisis at different rates, and thus the growth potential of the Estonian economy will continue to depend on this. As a second wave of the virus cannot be ruled out, the risk remains that the development of the economy will be worse than forecast.
Unlike the major financial crisis that began in 2008, in which the industry and construction sectors were hardest hit, the hardest hit this time around has been the labor-intensive service sector. Compared with the previous crisis, this has caused significantly more rapid growth in unemployment, even despite the fact that wage compensation has prevented a rapid increase in unemployment.
Some 120,000 people received wage compensation in April, or nearly one fifth of those employed, some of whom would have lost their jobs without the measure. As the wage compensation measure ends, unemployment will rise, and reach over 13 percent by the end of 2020. Wages are seeing significant adjustments as well — wages are decreasing by 1 percent this year instead of increasing as predicted at the beginning of the year.
In the overview of its economic growth forecast, the Bank of Estonia noted that a crisis may come unexpectedly for everyone, and that it is reasonable for both people and the state to build up reserves during good times in order to help cope. The private sector as a whole is better protected than it was prior to the previous crisis, however buffers for surviving difficult times are very unequally distributed. As the current crisis more sharply affects fields in which people's incomes are at the lower end, the central bank notes that the government must be prepared to ensure a sufficient social safety net.
Editor: Aili Vahtla