While the situation on the labor market remains relatively stable for the moment, more serious spikes in unemployment are still to come, the Estonian Unemployment Fund told ERR.
Statistics Estonia reported Tuesday that unemployment was at 6.7 percent in the second quarter, with the number of unemployed having grown by 8,500 to reach more than 50,000. Quarterly growth was even faster at 11,000 more unemployed.
Data from the Unemployment Insurance Fund, the statistics of which does not overlap directly with that of Statistics Estonia, put the unemployment rate at 7.6 percent and the number of unemployed at roughly 51,000 in July. Lauri Kool, communication adviser for the fund, said that the situation remains the same mid-August.
"Registered unemployment has been growing throughout summer, while August has been a little more stable luckily. Generally, unemployment seems to head down in early summer and up again come fall. The reason for this is seasonal work. This year was a little exceptional in that there was less seasonal work on offer and unemployment did not shrink as much as forecast," Kool remarked.
The fact that unemployment did not fall in June and July and more unemployed persons were registered than usual is one sign to suggest there might be a spike in fall when unemployment always heads up due to the end of seasonal work.
"It is to be feared that a greater spike is still to come this year," Kool said.
Economists have also warned of the risk of unemployment. The more or less decent economic situation today has more to do with summer optimism, and we may see unemployment head up come fall," Peeter Koppel said over the weekend.
Koppel said Tuesday that because the Scandinavian real estate market is in a poor state, where it will remain for as long as interest rates are soaring, there is nothing to suggest new demand for the processing industry in Estonia, which is set to contribute to unemployment growing in fall.
"Some Estonian companies have suffered a considerable drop in turnover. There is no immediate recovery in sight. In other words, interest hikes are driving unemployment, with relevant problems rather set to continue," the economist suggested.
Koppel said that looking at the economy as a whole, the processing industry living off outsourcing is its weakest link.
Heido Vitsur, analyst for LHV, said it seems incredible that in a situation where industrial output has been down 20 percent on year for quite a while and there are 21,000 more people employed than a year ago, the employment rate has remained stable and the total number of unemployed has only grown by 8,500 persons.
"As there is nothing to suggest the global economy and its Estonian counterpart might start to grow faster in the near future, the risk of companies being forced to dial back or close shop is considerable. We may learn of more layoffs and companies going out of business this fall," Vitsur said.
The analyst added that problems in industry usually make their way to other sectors and result in a general slump in economic activity, which necessitates layoffs also in other sectors.
Kool suggested that while he is glad the labor market and employers have weathered the storm so far, as suggested by economists, they cannot be saddled with all of the responsibility and the continually rising Euribor and inflation may still end up delivering a blow.
The Unemployment Insurance Fund stands ready, hardened by past crises, and has sufficient resources for unemployment spiking.
According to Statistics Estonia, general unemployment indicators have reached coronavirus period levels, resembling the situation between the second and fourth quarters of 2020. Unemployment among women was higher than among men in Q2 for the first time since 2019.
Number of available jobs dwindling
Kool said that the number of registered unemployed who were laid off at their previous position is at 6,700 already for this year, while it totaled 4,500 for the whole of last year.
The situation is also less than rosy when it comes to available jobs, he added.
"We cannot even compare it to last year, which was record-breaking. We saw up to 10,000 monthly job offers. This year rather resembles 2019-2020. On average, 4,800 classifieds have been added to our site every month."
The number of new job offers has been falling since May. July has seen considerably fewer offers than the two previous years, from 6,000 monthly offers to just 4,300 this year.
Karla Oder, head of marketing for classifieds portal CV Online, said that the number of classifieds has fallen a little compared to last year and the one before. However, she added that the change is rather a correction to the previously skewed supply and demand situation.
"The supply-demand balance is recovering. There is no cause for panic. The unemployment rate has been very low and skewed, employers have struggled to fins hands. This will alleviate the situation to some extent," Oder said.
Swedbank: Unemployment up as available work down
Liis Elmik, senior economist for Swedbank, said that the poor economic situation is starting to manifest in labor market indicators, and that falling employment is a result of a cooling economy.
"Unskilled and service sector workers are the most numerous among the unemployed. Unemployment is up simply because less work is available. The total turnover of companies was down 4 percent in the second quarter year-over-year," Elmik said, adding that data from the Tax and Customs Board suggests industry and construction are down on number of employed persons.
Heido Vitsur added that forestry is currently under the most pressure as the largest industrial sector employer. The construction sector is also under fire due to credit becoming more expensive, while foreign trade data suggests the situation in the metal sector deteriorated a while ago. Should these sectors remain hard up, visible problems will follow in logistics and commerce and eventually all sectors of the economy, including the need to lay off workers.
Elmik said that low domestic and foreign demand is set to add to unemployment over the second half-year. "The economic situation is forecast to improve next year and unemployment to come back down."
At the same time, the pressure on salaries remains. Both Tax Board and Swedbank data suggests salary advance has been over 10 percent in recent months.
Bank of Estonia: Unemployment hike tied to greater number of workers
Orsolya Soosaar, economist for the Bank of Estonia, said that while unemployment grew to 6.7 percent in the second quarter, it was caused by record labor market participation.
Bank of Estonia data suggests 745,000 people participated in the labor market for 74.2 percent of the working-age population, up nearly 30,000 since last year. Statistics Estonia's labor survey showed a 3.2-percent increase in the number of employed persons between the ages of 15 and 74.
The number of salaried workers grew the most in the services sector, while it fell in industry and construction. This is in line with recent news of several industrial sectors shrinking and lower exports, Soosaar remarked.
The Unemployment Insurance Fund data shows that the number of unemployed per wanted ad has started growing rapidly. Such developments should ease salary advance pressure and help slow inflation in the future," Soosaar found.
Koppel: Unemployment could affect central bank's interest decisions
Peeter Koppel remarked that the fact unemployment is headed up could start to affect the ECB's decisions of whether to hike base rates further or reverse course.
"Does the central bank consider growing unemployment when deciding what to do with interest rates – I believe they do, because if unemployment goes up, people spend less, which will impact demand and eventually the pressure on prices. It's another matter whether they admit this but I think that the central bank does consider it and might even be mildly glad to see unemployment rising," Koppel suggested.
Editor: Marcus Turovski