Swedbank Estonia: Electricity prices continue to bring bad news

Olavi Lepp.
Olavi Lepp. Source: ERR

Head of Swedbank Estonia Olavi Lepp said on Wednesday that energy prices will continue to rise in the coming months and there will be little relief.

Speaking on ETV's current affairs show "Esimene stuudio", he said rising prices is a new reality.

"We have to take into account fuel and diesel prices have increased, gas prices have increased, electricity prices, in general, have increased and we can see district heating prices are only starting to increase, in most places it's coordinated, but bills have to be paid. So there is rather bad news coming," he said.

Lepp said high electricity prices could be held back by the government.

"Obviously, it is already not a classical free-market economy. We have a lot of distortions - geopolitical distortions, wishes to save our environment and thereby the CO2 quota logic, which has made this market different. Therefore, when it's a politically regulated market, then the solutions are somewhere in the hands of politicians," he said.

Lepp said the current steps taken by the government, such as partially compensating the network fee, are not sufficient. They should also be targeted at those in need.

"In the sense that I got a €10 discount on network fees and it did not affect me much. I would have been much happier if someone else would have gotten the discount," Lepp said.

Threats and opportunities in rapid economic growth

The Estonian economy grew by 8.6 percent in the third quarter and Lepp sees both opportunities and threats in such rapid growth.

"The danger is that any kind of rapid growth could lead to all kinds of changes. It's almost always accompanied by an inflation problem for at least part of society. But the other way around, if things grow fast, someone can grow their business quickly," he said.

Although some analysts predicted even faster growth, Lepp said a reasonable limit appears at some point. He added that next year's growth will probably not be as high.

He said the situation with the tourism sector is still not good and the manufacturing industry, although slowly recovering, will be hit by rising energy prices.

Lepp is also worried about inflation.

Estonian construction companies built 15 percent more in the third quarter than last year, and at the same time a record amount of housing loans was issued in Estonia in October. Banks' housing loan portfolios grew at the fastest level in 10 years.

Lepp said that there is currently no direct risk of the economic bubble bursting.

"Right now we don't see it. As long as we have very high employment, people's wages are rising, there really isn't a direct reason for that."

This week a new report by the OSCE also warns over overheating in the economy.


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Editor: Roberta Vaino, Helen Wright

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