Estonian economy to deteriorate over next six months — experts

Marje Josing,
Marje Josing, Source: SiiM Lõvi /ERR

The Estonian economy is currently satisfactory but will cool down over the next six months, economic experts said on Tuesday. Consumption is still strong, but the situation for families is deteriorating.

The June report shows the economy is satisfactory but has significantly deteriorated compared to March. Due to the war in Ukraine, the economy is expected to deteriorate over the next six months.

Economic growth will slow, retail prices will continue to rise, and there will be a deterioration in export and import opportunities, Estonian Institute of Economic Research (EKI) director Marje Josing said giving an assessment at a press conference.

"We're not quite in an economic crisis or have hit rock bottom, but we're still in a phase of decline and moving towards a crisis now," Josing said.

Lack of skilled labor is the biggest problem followed by political instability and falling foreign investment, experts interviewed by the EKI said.

The foundation believes private consumption will drop over the next six months due to falling wages, high inflation and rising energy prices. Investments will also shrink.

Josing said companies sales growth and forecasts were not bad last month but will fall in the next quarter.

"With the exception of some areas in the service sector. Industry and trade, construction. In fact, it can be said that we foresee that their turnovers will grow in the next three months. Not at the same pace as now, but they will grow," said Josing.

Economic confidence is declining because it is difficult to sell to neighboring countries and inputs have become more expensive.

"It is very strongly correlated with our export partners, if it also falls in Sweden, [then] it also falls in Finland," said Josing.

Countries close to Russia are also seeing a fall in confidence. Looking at the longer term, confidence is higher in sectors such as industry and construction.

People have also started to spend their savings to cope with inflation. This has risen to 26 percent.

Josing said economic growth will not rise quickly. The EKI forecasts a 1 percent increase in GDP and inflation to be 14 percent in 2022.

"Wages will continue to grow, but as inflation is faster than wage growth, then people's real wages will fall over a very, very long time. In this sense, people should now take a long look at the winter period and take into account that times will not be the easiest for consumers," said Josing.

Prices in EKI's weekly family food basket rose by 8.9 percent in the second quarter. In June, the total was €95.93, €7.84 more expensive than in March. Compared to June 2021, it was 17.9 percent, or €14.55 dearer.

The prices of eggs, flour, meat and minced meat, and sugar had the highest increases and no lower prices were seen.


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Editor: Helen Wright

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