Bank of Estonia: Estonia's economy is doing better than expected

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Estonia's economic growth in 2020 will be negative but the outlook is better than initially feared during the emergency situation in the spring, Governor of the Bank of Estonia Madis Müller said on Wednesday.

Speaking on ETV's morning show "Terevisioon" before the publication of the central bank's economic forecast later today, Müller said: "In Estonia, our lives and economy were less affected by the virus and restrictions than European countries on average. The target markets in northern European countries also did better."

Müller said the coming months will be quite difficult due to the second wave of the coronavirus and the subsequent new restrictions but the economy should be able to recover quickly.

"In the summer, we saw how quickly Estonian companies and the economy were able to recover as the virus receded," he said, but added not all sectors had been hit with the same force, such as the tourism industry which is still struggling.

The Bank of Estonia's forecast shows unemployment will rise in the first half of 2021 but is likely to slow down when the vaccine arrives. After that, the economy will start to recover when restrictions are lifted.

"The average salary will not decrease even this year," Müller said. "The lives of the Estonian people will continue to improve in the coming years and incomes will grow."

Last December, before the pandemic, the Bank of Estonia forecast 2020's GDP growth to be 2.3 percent.

Forecast: Estonian economy to contract by 2.5 percent in 2020

The Bank of Estonia's positive and negative scenarios. Source: Eesti Pank

The Estonian economy declined by 2.5 percent in 2020, the Bank of Estonia's December forecast shows. An increase of 2.9 percent is expected in 2021.

While Estonia's GDP fell this year, it has not fallen as much as predicted during the emergency situation caused by the coronavirus in the spring.

The unemployment rate is expected to reach 7.3 percent in 2020 and rise to 9.9 percent in 2021.

The Bank of Estonia's forecast assumes the spread of the coronavirus will be under control during the first half of 2021 and the restrictions will have been removed. In this scenario, external demand will start to grow in the middle of 2021 and consumers' purchasing power will recover in the first half of the year.

"The experience of the third quarter of this year showed that by removing the restrictions, the economy will be able to recover very quickly," the central bank said.

Unemployment will continue to rise in the near future and helping the unemployed will require additional support.

Loan conditions offered by banks will remain favorable, the bank's forecast shows, and the economy will receive a temporary boost in 2021 after people start withdrawing funds from the second pension pillar.

The Bank of Estonia expects economic growth at the 2019 level (3.4 percent) to have returned by 2022. 


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Editor: Helen Wright

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