The Bank of Estonia on Tuesday said that it has raised its estimate on Estonia's gross domestic product (GDP) growth for 2017 by half a percent to 4.3 percent, adding that the Estonian economy is nearing the peak of the growth cycle.
The country's central bank also raised its GDP growth forecast for 2018 by 0.9 points to 4.2 percent and the forecast for 2019 by 0.2 points to 3.1 percent.
This summer, the central bank had raised its forecast for 2017 by 0.9 percent and the forecast for 2018 by 0.3 percent.
The Estonian economy has been strengthening throughout 2017, the Bank of Estonia said in its commentary. Also, output in most areas of activity grew fast in the third quarter, and the economy's gross ouput was 4.2 percent greater than during the same period last year.
Growth rates registered by Estonia's main trading partners as well as other countries of Europe have surpassed expectations, which has given an impetus to Estonia's economy as well. Estonia's economic growth in 2017 is estimated to surpass four percent and emerge as the highest full-year growth rate in the past six years. Estonia's GDP growth will surpass four percent in 2018 as well, but will thereafter slow down as a result of waning momentum and the exhaustion of production capacities.
As a result of high demand on both domestic and foreign markets, the Estonian economy has exceeded its long-term sustainable growth level, according to the central bank.
While the current state of the economy is not yet indicative of overheating, the danger of this happening does exist. Unlike the situation ten years ago, the structure of the economy is not distorted by rapid growth of the debt burden. At the same time, the construction sector is in a phase of robust growth on the back of increasing orders from the private and public sectors alike. The construction sector stands out from other areas of business with the highest shortage of labor, which, if new orders continue to come in, may lead to a situation where people are lured to construction jobs from other sectors with higher pay.
The frequency of employment transitions has already reached the level of the previous boom. The Bank of Estonia recommends avoiding a situation where the concentration of projects into a short period of time and volatility caused by this once again results in big growth fluctuations throughout the economy. The government sector has a big role to play in achieving this, the central bank added.
Editor: Aili Vahtla