Analysts: Most of second pillar money to fuel consumption

Ülemiste shopping center.
Ülemiste shopping center. Source: Siim Lõvi /ERR

Bank analysts expect most of second pillar pension money people have withdrawn to end up in private consumption. It is expected to liven up already considerable growth and might lead to overheating in some sectors.

Experts said that polls suggested half of sums withdrawn would be spent immediately even before second pillar asset payments began.

LHV analyst Kristo Aab said it is likely Estonia is looking at a consumption boom.

"It will liven up the economy in the short term that might come as some consolation for traders after two lean coronavirus years. That said, we know the supply side of things is already problematic," Aab said.

While polls suggest half of the approximately billion euros to land in people's bank accounts will be spent on cars, appliances, traveling or other immediate purchases will energize consumption in the short term, most of the second pillar money withdrawn will eventually support consumption, analyst for SEB Mihkel Nestor said. This is also expected to reflect in economic growth figures. Nestor forecasts annual growth at over 7 percent.

"First quarter growth amounted to 4 percent and reached 13 percent in Q2 – an annual growth figure of fewer than 7 percent would require something to go horribly wrong. Looking at the effect of pension assets on consumption, the second half-year should be rock solid," Nestor said.

"We are talking about half a billion euros that is a few percentage points of additional growth in the context of GDP. I believe the contribution will be greater still, while we will not see the effects inside a single quarter," Kristo Aab from LHV said.

Analysts added that increased consumption will likely also have negative consequences.

"The danger is that should certain goods or services prove very popular, demand could outstrip supply that would see prices skyrocket. Certain sectors overheating would be another negative development," Nestor said.


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Editor: Marcus Turovski

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