Swedbank expects the current trend of rapidly increasing wages to continue in Estonia this year, with average gross monthly pay likely to grow by 7 percent, senior economist at the bank, Liis Elmik said on Wednesday.
"Wages are increasing rapidly across all pay levels. In recent years, wages have grown the fastest at the lower end of the pay scale in particular. As a result, wage differences in Estonia have decreased. Last year was an exception, when the growth in lower gross wages decelerated as a result of the income tax reform. This year, the growth of lower wages has picked up again, however," Elmik said in a press release on Wednesday.
According to Statistics Estonia, in the first quarter of 2019 average monthly gross wages and salaries increased by 7.9 percent on year to €1,341. Wages grew in almost all areas of activity, with the fastest increases registered in the construction and energy sectors.
Average monthly net wages grew by 6 percent in the first quarter, with consumption following suit.
"In addition to an increase in income, consumption was supported in the spring months by tax rebates. Cars continue to be bought at a relatively robust rate. The balance of car leases in April was one-fifth greater than in the year before," Elmik said.
The property market, on the other hand, is relatively quiet. The number of purchase and sale transactions on the apartment market, and the average and median prices of apartments are growing at a modest pace. Turnover of the purchase and sale transactions grew by 6 percent in the four months since the beginning of the year, Elmik said.
While the real purchasing power of salaried employees continues to grow, this growth is significantly slower than last year.
The rapid wage growth along with an increase in social benefits has strengthened the financial standing of households, she added. Families' assessments of their financial standing are better than ever before, significantly exceeding the levels of the last boom years.
In addition to the current labor shortage, wage growth is supported by an increase of the minimum wage. In 2019, both the minimum wage and pensions were raised by 8 percent. The increase in the average gross monthly wage should reach 7 percent this year, according to Swedbank.
Elmik also pointed out that economic growth was still robust in the first quarter of the year.
"In the second half of the year, the cooling of the global economic climate should reach Estonia as well. Whether or not it will affect the speed of wage growth as well we'll likely see only next year," she said, adding that rapid wage growth is putting particular pressure on exporters, who have to compete with companies from countries where labor costs have not grown at the same pace.
"The assessment of Estonian exporting companies of their competitiveness has deteriorated since the second half of last year. For companies active in the domestic market, higher wages also mean greater demand, which is why it is easier for them to account for the higher labor costs in the end price of services and products," Elmik added.
Editor: Dario Cavegn