Swedbank: Estonia may have highest economic growth of past 15 years in 2021

Swedbank Estonia head office, in Tallinn.
Swedbank Estonia head office, in Tallinn. Source: Siim Lõvi /ERR

Swedbank has forecast 2021 economic growth in Estonia of 8 percent, up from 3 percent forecast in April. This means the country is likely to experience its fastest rate of growth in 15 years, Swedbank says, though it has revised its 2022 forecast downward slightly, to 4 percent.

Avoidance of economic overheating, particularly in construction, is also important, Swedbank says.

Declining consumption opportunities and consumer uncertainty are the main factors in the growth, the bank says.

Liis Elmik, senior economist at Swedbank, said that: "Large infrastructure projects are a hot topic not only in Estonia, but worldwide. The bigger construction companies are worried about how their projects will get completed."

Nonetheless, Swedbank chief economist Tõnu Mertsina said that: "The overall picture of the world economy is significantly better than we saw in the spring, with first quarter growth this year unexpectedly strong, according to most analysts."

"In the first quarter, Estonia's GDP already rose quite substantially above the pre-pandemic level," Mertsina said. 

Growth in retail deposits peaked in March this year, and continues to be very strong there as well, Swedbank reports.

"Economic growth in the second quarter will be very strong, and there is already a base effect with a significant impact," Mertsina added.

The coronavirus has not gone away, though, and may affect continued growth, Mertsina said. "Both worldwide as a whole and in Estonia, the spread of the delta strain represents the highest risk, and it may slow down the recovery of economic growth, if it affects our trading partners."

"The Delta strain can affect both supply, i.e .production, and vaccination, while slow vaccination rates in Asian countries can also affect their supply chains and further affect raw material shortages," he continued.

The bank forecast of three percent growth in April and five percent next year, revised to eight percent and four percent respectively.

Wages will rise by six percent this year, while both wage growth and inflation should slow down next year, the bank said.

Growth in Estonian investments has been very strong since the third quarter of 2020, Swedbank says.

"In general, companies now need more investment in their efficiency," Tõnu Mertsina added.


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Editor: Andrew Whyte

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