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Bank of Estonia: Sustained economic success demands investment

Speaking at a finance conference in Pärnu on Thursday, Bank of Estonia Deputy Governor Ülo Kaasik said that 2017 was a good year for the Estonian economy, but long-term success will require companies to invest a lot more money than they are currently investing.

"Companies have been making investments in recent years, but not enough," Kaasik said according to a Bank of Estonia press release. "The lack of investment has been compensated for by increases in the number of employees. This cannot continue for long, as 70 percent of the people of working age in Estonia are already employed, which is one of the highest rates in Europe. If we want to catch up with the wealthier countries, more investments by the private sector will be needed."

According to Kaasik, given the current phase of the economic cycle, it would be reasonable for the government to run a budget surplus and postpone some of its spending. He noted that the construction industry in Estonia is working at full throttle, and the more the government directs its own spending to construction, the less the private sector will be able to make its own investment in the sector.

The Estonian economy grew by around five percent last year, and investment contributed to this growth, Estonia's central bank said. General government investment was given a boost by the more efficient use of EU Structural Funds.

The general government invested primarily in buildings and facilities as well as in transport vehicles. Investments by companies benefited from the favorable position of foreign markets and the desire to increase production capacity. Estonian companies invested a smaller share of their value added than average compared to companies across the rest of the euro area. According to the Bank of Estonia, this is not enough if the Estonian economy is to catch up to those of wealthier countries.

Editor: Aili Vahtla

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