Bank of Estonia: Weak economy to hamper future wage growth

Weather vane atop the Bank of Estonia building in Tallinn.
Weather vane atop the Bank of Estonia building in Tallinn. Source: Siim Lõvi /ERR

The average gross monthly wage rose by 12.4 percent on year to the second quarter of 2023 (Q2 2023), to €1,873 per month, the Bank of Estonia (Eesti Pank) reports. However, the weak position of the Estonian economy will act as a brake on further growth of any significance, in the near future.

Wage growth accelerated in the public sector as new collective agreements for health care workers came into force in Q2 2023, the bank says.

Educators' wages had risen in the first quarter, boosting public sector wage growth for the year as a whole, the central bank adds.

While wages also rose in the private sector, the rate of growth slowed, from 12.7 percent on Q1 2023, to 10.9 percent in Q2 2023.

 Such a rate of growth may be considered rapid given that the economy remains in the doldrums, the bank adds.

Sales and exports fell for companies involved in manufacturing, the main export driver of the Estonian economy, by more than 10 percent in Q2 2023.

This is partly due to low demand from trading partners, but may also relate to wages having previously risen rapidly, the central bank says.

This in turn may have made Estonian companies less competitive, which then makes future recovery in the economy potentially more of a struggle.

Survey data show that the interest of companies in hiring new staff has been low for some time, the central bank says.

The number of jobs has fallen in several branches of industry, and also in some branches of the service sector. This all suggests that growth in wages will slow up.

Employees' real income has had inroads made into it thanks inflation, but there is a slightly lower chance of moving to a job with a higher wage, while at the same time the likelihood of getting a pay rise in the current job is lower than before, the Bank of Estonia says.


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Editor: Andrew Whyte

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