Huko Aaspõllu: Economic boom around the corner
We are about to enter a coronavirus recovery boom. The economy opening up is a matter of a few months. At the same time, we should not forget that not everyone has been hit equally in the crisis and for those who drew the shortest stick, recovery might even work to deepen inequality, Huko Aaspõllu finds in Vikerraadio's daily comment.
Winter is still desperately holding on. It is cold and desolate outside, while everything is still closed. The coronavirus period is lingering along with a high infection rate. However, looking past the surface, things are much better than one might think. We are on the threshold of major economic growth.
Why make such a claim in a situation where the entire world is still besieged by coronavirus woes? Because all of it is about to change. Western economies are about to open up in full. A lot of capital has been accumulated and generated in the meantime. And more is on the way. Major countries have created colossal funds for economic recovery while quantitative easing has not eased up. Estonia is a small and open economy, with these effects sure to manifest here.
What is more, however terrible the current economic slowdown appears, not all ventures have stalled. Everything removed from direct customer service has managed to remain operational and quite successfully so.
As soon as infection rates drop enough – which will happen sooner rather than later – the rest of the economy can open. Whereas our actual vaccination progress is not half bad, despite seemingly universal criticism. The deficit of vaccine doses is about to end and it will take a lot of convincing to find enough shoulders into which the vaccine has not been introduced. Several top-ranking politicians have already voiced doubt.
Many people in Estonia have not suffered financially in the crisis. They have retained their work and level of income. Rather, their expenses have been dialed back. People in Estonia saved a summary €800 million on holiday travel alone last year. Not to mention second pension pillar payouts come fall that will end up in consumption or as investments.
When the crisis started a year ago, construction companies and real estate firms braced for a major social collapse similar to what we saw in the previous economic crisis. They quickly went over their developments and plans and dialed back or shelved a lot things.
Because of caution on the part of developers, but also as a result of the uneven impact of the crisis, capital remaining readily available and continually low interest rates, the real estate sector has come under serious purchasing pressure. The surplus is manageable, new developments are few and far between and buyers are lining up despite price advance.
Which is all the more interesting seeing as rent prices are not going up and people who might want to use their second pillar assets to make a down payment will not receive the money before September. Supply will catch up, of course, but it will take some time.
The boom will not be universal and even. A fourth of sectors have been hit in the crisis. Many companies are on the verge of bankruptcy. The unemployed still number over 50,000. Many have by now used up their savings to make ends meet. Those hit hardest in the crisis have little to look forward to.
Whereas national recovery plans are also concentrating on sectors where employees and entrepreneurs are doing fine. For example, Estonia's recovery plan is aimed mostly at the construction sector that is doing fine as it is.
While resources will trickle down to other walks of life, we could be bothered to think a little further ahead. For example, in terms of our plan for bringing Finnish tourists back to Tallinn. The Tallinn Old Town is deserted today. We have lost over €1 billion in tourism revenue. It is also probable that statistics fails to reflect the true extent of the impact on tourism and catering as both sectors sport high relative importance of shadow economy.
While the booming economy will bring a measure of comfort also to those hit hardest and jobs and income will be restored, alongside individual well-being, the effects of the crisis have been very uneven and unfair, with recovery looking to be no more egalitarian. People who have been out of work for a long time will initially agree to work for less and under worse conditions. To have anything at all.
Those who have experienced no work-related problems, people who can work from home and are safe from layoff in public employ feel it is time for a salary hike. They have not seen one for years and the coronavirus period has been difficult.
Besides, had these others – the poor – observed restrictions, things would have been easier. For example, teachers have already released a collective address according to which their minimum salary should equal the national average.
Minimum wage that is paid from tax revenue the heaviest part of which tends to fall on low-income workers in Estonia. A person whose income and wealth are modest has to part with a much greater part of their income than the wealthy. And even though the new coalition promised tax peace, there are plans to deepen this type of taxation. I am referring to the plan of restoring the recent excise duty rate on diesel that while sensible on some levels, it still a clearly regressive step.
All in all, the economy is about to be just fine. Probably better than the forecasts of the finance ministry or the Bank of Estonia suggest. At the same time, this recovery will not reach everyone right away and might not improve things everywhere. Many will not find themselves in their element, which is something we should keep in mind.
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Editor: Marcus Turovski