SEB, Nordea: Wage growth in Estonia will continue
Commenting on first-quarter wage data released by Statistics Estonia on Monday, SEB Pank and Nordea both indicated that wage increases in Estonia are set to continue.
Mihkel Nestor, analyst at SEB, said that wage growth in the same range as the 5.7 percent on-year increase reported for the first quarter of 2017 is expected to continue in upcoming quarters as well.
"A certain slowdown in the increase of gross wages is consistent with our estimates and we expect wage growth to continue at a similar rate in the following quarters as well," Nestor told BNS. "The increase in the real wage will be slower, however, undermined by inflation, which is reaching three percent."
According to the SEB analyst, wage growth is driven primarily by demand for workforce.
"GDP statistics will be released on Wednesday," he said. "However, rapid growth in industrial output and export growth along with very high confidence indicators are indicative of a substantial rate of economic growth. Therefore we can presume that the situation of businesses which have thus far had to finance wage growth largely at the expense of their profits is about to become easier."
Tõnu Palm, chief economist at Nordea, said meanwhile that even though wage growth decelerated in line with expectations, wage pressure was not giving way.
"The speed of growth in the average wage decelerated in the first quarter in line with expectations, but this does not mean that wage pressure will ease in the future — quite the other way around," he told BNS. "In recent quarters, when it comes to hourly wages, there have been signals of wage pressure resuming in exporting branches of the industry as well, including energy and mining, whose growth previously lagged behind the average rate of growth. In construction, for instance, an increase in volumes is expected as well, which will leave its mark on labor demand in the future."
Palm pointed out that growth in real wages in Estonia peaked last year and that, beginning this year, consumers must get used to higher costs.
Along with the enlivening of the economy and increase in export demand, wage growth will become more consistent with productivity, according to the Nordea economist. Under labor market conditions that are close to full employment, the gap with productivity will persist. A moderate gap does not represent a direct threat, however, and will make businesses adopt change to increase value added.
Average monthly gross wages and salaries totaled €1,153 and average hourly wages totaled €7.13 in Estonia in the first quarter of 2017, Statistics Estonia reported on Monday. Compared to the first quarter of last year, the average monthly gross pay increased 5.7 percent and the average hourly gross pay 3.9 percent. The on-year growth in average pay was 1.2 percent slower than during the previous quarter and growth against the same quarter last year decelerated for the fourth quarter in a row.
Editor: Aili Vahtla