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Coop Bank chief: Signs show the economy is starting to recover

Margus Rink.
Margus Rink. Source: Siim Lõvi /ERR

Margus Rink, head of Coop Bank, said on "AK" that despite the fact that the Estonian economy contracted by 3 percent in the fourth quarter of last year and Estonians consumed 8 percent less last year, there are signs that the economy has leveled out and is starting to recover.

Why is Estonia at the top of the European Union in terms of recession?

The reason is geographical location. During the last three years, all major trade with the eastern neighbors has collapsed. Also, we live in the darkest and coldest corner of Europe, where energy demand is high and energy prices have risen  sharply in recent years.

Moreover, Estonians want to be paid fairer for their job. We no longer compete with cheap labor in places where prices remain low. This has reduced Estonia's competitiveness. This is why the recession is worse than in other countries.

Statistics show that Estonians are consuming less, and there is uncertainty about the future. Is this concern also reflected in the data you receive from the bank?

Absolutely. The most basic illustration is that clients are applying for fewer loans. Overall, there were 25 percent fewer loan applications last year.

Another interesting tendency we're seeing with corporate clients is that they're reluctant to start new companies because they don't have the support base - they haven't had a sense of where interest rates are going, what tax rates are going to be, or what wage growth numbers are. As a result, there is no support platform, so the entrepreneur floats like a bog. Certainty is needed. Fortunately, this ground has recently began to break: the Euribor has hit its peak, and the ECB is hinting that (interest) rates will begin to decline this spring-summer.

We also see that energy prices have stabilized, no longer as they were in the fall of 2022. Wage increases are no longer 10 percent and inflation has halted. I think this will clearly create the conditions for entrepreneurs to dare to undertake new business plans, to create new jobs, economic growth will come, more taxes will be paid into the state budget, and then perhaps there will be less need to raise taxes.

You are quite hopeful. There is a lot of talk about firms keeping cash reserves from the good times and expecting things to improve. Have you risk assessed that unemployment may rise quicker if there is bad news this year as well?

When it comes to economic forecasts, I am more optimistic than the Bank of Estonia. At the moment, unemployment is only 7 percent and we have endured three years with people relying on their own reserves.

At the bank, we can see that we are not going to get into debt. People have jobs, they can pay their mortgage payments. Now that we're seeing the first signs that we're climbing out of this hole and the chin is on the hole, it can't get any worse from there.

It's doubtful that we'll all be able to jump out of the hole at once. Falling into the hole was a long process, and now we must climb out. The economy is cyclical; we expected the downturn, we were at the bottom, and we are still showing signs of remaining afloat.

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Editor: Marko Tooming, Kristina Kersa

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