Estonia's 2019 economic growth is forecast to fall below 3%, while rapid wage growth is expected to attract growing numbers of foreign labour, according to the latest economic forecast published by Luminor.
"Estonia's strong GDP growth of 3.9% in 2018 is expected to follow a general moderation trend evident in external markets, and fall below the 3% mark in 2019, with a slower momentum in euro area and the Nordic countries," Luminor said in its economic outlook. "Caution is warranted with headwinds continuing in the external environment, with global trade uncertainty and US-China trade negotiations in progress."
According to the outlook, consumption will be a key growth engine for Estonia in the next few years. The strong labour market is expected to deliver a substantial contribution to Estonia's growth in 2019 along with modest growth in investments and exports. Global trade uncertainty remains the key risk factor for the future.
"Prioritisation and focus on measures to boost long-term growth potential of the economy could contribute to sustainable convergence with euro-area income levels and help to address a number of future demographic challenges," Luminor Estonia chief economist Tõnu Palm said. "Is the balance of investments going to be tilted more heavily towards infrastructure spending bills or more human capital investments remains among the key choices going forward."
He said that Europe faces increasingly global competitiveness challenges with the speed of global technological and digital transformation underway. Investment to future long-term growth could address notable research, education, targeted elderly care social services and smart infrastructure, including digital economy and smart cities.
Pointing out that the average gross monthly income in Estonia has grown by no less than 58% since 2011, Mr Palm said that as a remarkable achievement, the still very much halfway income convergence has already manifested itself in four consecutive years of population growth. Population decline has now clearly turned toward growth, with remigration flows, and attracting skilled foreign labour, including from from developed countries, to fill the increasing labour demand.
Estonia's GDP per capita reached approximately 79% of the EU28 average in 2017, at par with Portugal, but still far away from average levels.
The number of people who arrived in Estonia in 2018 surpassed the number of those who left by 6,095. Add to it some 20,000 foreign workers who stayed in Estonia as short-term workers, and this indicator becomes even more remarkable. It is thus that Estonia is gradually becoming attractive for labour from the EU, which in its turn helps to ease the main issue facing the labour market — the increasing shortage of skilled labour, according to Luminor.
The Estonian economy has achieved significant success in the field of digital economy. On the back of its expanding ICT sector, it is possible to raise the value-added of other branches as well, including industry. Companies' digitisation and the more active introduction of new technologies would also enable to further increase the share of the export of services, which is a direction followed by an ever growing number of economies, Mr Palm added.
Editor: Aili Vahtla