In a situation where industry is facing difficult times due to declining exports, employees still maintain the expectation of wage growth. The currently decent-seeming economic situation has more to do with typical summertime optimism, and we may see a rise in unemployment this fall, economic expert Peeter Koppel said in an appearance on Vikerraadio's "Vikerhommik" morning program on Friday.
Employers have less and less desire and opportunity to raise wages, while employees are less and less eager to continue on their current salaries, the results of recent studies confirm. Recent economic statistics, however, continue to show a severe downturn in the economy and a significant decline in exports — and this first and foremost in the manufacturing industry.
There is a significant gap in employees' wage expectations and employers' desire to increase wages, and people's wage expectations have a lot to do with the rapid wage growth seen last decade — which was remarkable worldwide, Koppel said.
"If we're talking about 2010-2020, then I think real wages in Estonia grew the fastest in the world," he recalled. "People clearly remember this, and the expectation of rapid wage growth is still there."
Addressing that gap in expectations, however, he noted that many employers don't see any opportunity to raise wages, especially in the manufacturing industry and exports related to Scandinavian real estate; they've seen a significant drop in turnover.
According to Koppel, exports in the manufacturing industry have fallen 15 percent in just a few years — and by half as much again in the furniture industry specifically.
"We understand that when interest rates are low, everyone buys real estate, and they need furniture for that," he explained. "Demand has been good, but as soon as money is expensive, things will go as they do with real estate, and demand will decrease."
He added that right now it doesn't look as though demand will start to grow among Estonia's main export partners, and that means fewer orders for Estonian producers, and likely the forsaking of wage hikes.
"The rise in interest rates, which has been rapid, has thoroughly cooled the economy," the expert said. "And done so with our export partners. That optimistic 'We're still alive' feeling has more to do with summer; the mood will be different in fall, and in many places they'll look and see that something must be done now, that we have to start scaling back."
He doesn't believe one should be overly pessimistic either, however, as it's been possible in Estonia to reprofile the economy in crises.
"Even now I'm not hopeless, despite the situation in certain export sectors," he acknowledged.
Nonetheless, signals coming from retailers that food prices are going down should not be expected to mean that prices will return to the levels seen several years ago, he continued.
"Given the inflationfest, we certainly shouldn't be expecting to see any sort of significant reversal," Koppel said. "Looking at the global picture, if things were good with energy prices — but they're not. The Saudis want to earn money, the price of natural gas in Europe is very volatile and energy prices tend to be reflected in food prices."
In terms of this fall, the economist said that the main thing to keep an eye on is the labor market. "Following signals from employers, unemployment could start to see a slight increase," Koppel said.
"What is positive is that unemployment levels are in fact relatively low," he continued. "This situation is by no means tragic at the moment. In terms of the general labor shortage, the employment rate should more or less be maintained at a rate that's almost good."
Editor: Aili Vahtla