Economic growth slows in first half of 2018

Inflation is expected to decelerate in 2019, according to Swedbank.
Inflation is expected to decelerate in 2019, according to Swedbank. Source: Siim Lõvi/ERR

Growth in the economy slowed in the first half of 2018, signs of which were evident in the labour market, with employment growing more slowly than in 2017, for example, the Bank of Estonia said on Thursday.

There are still many vacant positions in the economy, but they are fewer in number than a year ago, Bank of Estonia economist Orsolya Soosaar said in a press release.

Despite some calming of the labour market, labour shortages remain dominant. Employers say that finding employees remains a serious problem and the share of people of working age who are already working is has reached historic peak levels.

Wages rose somewhat faster in the first half of 2018 than labour productivity did, meaning that production in Estonia is becoming more expensive. At the same time, however, wages have started rising faster in many newer EU member states, and so production in Estonia is not increasing in price relative to the competition as quickly as it was a year ago.

Wages rose more slowly in the second quarter of 2018. This may be because the rules have been relaxed for foreign workers, and people who have previously been out of the labour market have been participating more actively.

Slower wage growth may also be a consequence of the income tax reform. The tax burden on workers earning up to the average wage fell notably, and this may have allowed employers to raise gross wages by less in 2018. The income tax reform also affected how wages were paid out in the summer months, and if this affected the estimate of the average wage, faster wage growth can be expected again in the second half of the year.


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Editor: Aili Vahtla

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