The Ministry of Finance raised its economic growth forecast for this year to 4.3 percent, up 1.9 percent from its spring forecast.
This spring, the Ministry of Finance still estimated that this year's economy would grow 2.4 percent and Estonia's GDP would amount to €22.1 billion. At present, however, the ministry estimates that the GDP will be €700 million bigger, amounting to €22.9 billion, while the economy will grow by 4.3 percent.
The ministry also raised its forecast for next year's economic growth, but less than that of this year. While in spring, the Ministry of Finance estimated economic growth in 2018 to amount to 3.1 percent, they adjusted this figure in the fall forecast to 3.3 percent, an increase of 0.2 percent. The ministry still forecasts 3.3 percent economic growth in the following two years.
The ministry has also slightly raised its figure for expected inflation, from a 3.3 to 3.4 percent change in consumer prices for this year. Its inflation forecast for next year, however, remained unchanged at 2.7 percent.
According to the data sheets of the ministry's economic forecast, the ministry is expecting an important change in that, due to increased economic growth, the budget position, which takes into account current laws and was estimated to be in a structural surplus for this year, is to become neutral. At the same time, its future deficit will decrease and reach a surplus again in 2020. Consideration of the state budget position, however, has not taken into account laws which have yet to been approved by the Riigikogu and as a result may not adequately reflect the amendments in budget position, as many important amendments are still being handled.
Wages, employment to grow
Average wages will increase from last year's €1,144 to €1,217 this year and €1,280 next year, with real growth amounting to 2.9 percent this year and 2.5 percent next year. Moderately fast wage growth will continue, which is in accordance with developments in productivity. A new, differentiated basic exemption system will enter into force in 2018, as a result of which the basic exemption of most earners will increase to €500. As a result, up to an additional €66 will be paid to the accounts of low- and medium-income employees every month. This, in turn, will support the increase in private consumption and decrease pressure on the growth of labor costs, the ministry said.
Positive developments of the labor market have continued and labor demand is high. The nuber of employed people is high and, according to the forecast, will continue to increase annually, reaching approximately 649,700 people in 2017 and 659,600 people in 2021.
The labor market is notably influenced by the work ability reform, the aim of which is to help a large amount of people who had previously been largely outside of the labor market find employment. The reform may turn out to be more successful than expected, as thus far, more people with reduced work capacity have found employment than initially expected. Most of them will be registered as job-seekers until finding employment, which will lift the statistical unemployment rate. The unemployment rate this year is expected to amount to 6.9 percent, while next year it is expected to reach 8.3 percent.
Tax burden to remain stable
The tax burden is to remain stable in the next few years. From 2018-2021, tax amendments will reduce labor taxes and increase consumption taxes and capital taxes. All in all, the tax burden during this period is to amount to an average of 34.3 percent of GDP.
"More usual circumstances are returning in Estonian and European economy," Minister of Finance Toomas Tõniste (IRL) said in a press release. "This has brought with it faster economic growth than we have seen in the past few years. The government will continue with a responsible budget policy. The government sector's debt burden is to decrease and tax burden will remain on the same level for the next few years."
Editor: Aili Vahtla