Swedbank revises economy 2021 forecast to more optimistic 3 percent growth

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Estonia's Gross Domestic Product (GDP) will grow by 3 percent this year, and by 5 percent in 2022, Swedbank reports in its latest forecast, which has proven more optimistic than earlier Swedbank reports, mainly due to improvements in external demand and the impact of pension reform. This means that the economy should be back to the level it was on the eve of the COVID-19 arrival in or around this fall, according to the bank.

The latter, which saw many individuals cash out of the so-called second pillar of the Estonian pension scheme, following a law permitting just that, has led to a cash injection into the economy equivalent to 3.7 percent of the 2021 GDP estimate, exclusive of income tax, Swedbank says.

The full impact of pension reform is, however, expected to be revealed ahead of the final quarter of this year.

Spending of these savings will give additional impetus to consumption and investment in real estate, Swedbank says.

Swedbank senior economist Liis Elmik says economic growth is to pick up significantly in the second half of the year and will result in a higher price level. Price levels will also be boosted by more expensive commodity prices, she said. 

Swedbank: Green shoots of recovery already here

Other signs of recovery following the downturn brought on by the pandemic will include a fall in unemployment, from the second half of this year, Swedbank says, supported by an improvement in the overall economic situation and growing demand for labor.

The average unemployment rate is forecast to stand at 8 percent this year, dropping to 6.9 percent, or approximately 2020's level, next year.

Wage growth will be slower it was just before the crisis. However, the situation for households will be facilitated by moderate price growth, Swedbank says.

Wage growth will meanwhile stand at 4 percent this year and close to 5 percent 2022, while prices are set to rise 1.5 percent in 2021 and by 2 percent next year, Swedbank says.

Swedbank chief economist: Pre-pandemic economic level will be reached in second half of 2021

Tonu Mertsina, chief economist at Swedbank Estonia, surmised Tuesday that Estonia is estimated to cross the pre-crisis threshold in the autumn of this year.

However, reaching pre-pandemic forecast trends - in other words where the economy would have been had the coronavirus not appeared - will take another four years to attain, he said.

Government sector investments will make up a stronger proportion of GDP as well in 2021, though the down-side of this is it risks overheating in the construction sector a few years hence, Swedbank says.

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Editor: Andrew Whyte

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