The economy will grow by 3.3 percent this year, the Finance Ministry said while delivering its summer economic forecast on Monday. However, growth is expected to slow down over the next few years.
The forecast said the economy is "strong" and will continue to grow in the coming years but at a slower pace due to the outlook for the world economy. The Estonian economy is expected to grow by 2.2 percent in 2020 and 2.6% in 2021.
The labor market is currently characterized by high levels of employment and rapid wage growth, and there is record number of people in enployment, which is expected to grow by one percent. However next year employment growth will slow significantly to 0.1 percent as the labor force is shrinking.
This means that companies need to start reviewing their business models and invest more in improving productivity. Unemployment will remain close to 5 percent this year and will increase slightly to 5.6 percent next year, a press release from the Finance Ministry said.
The average salary will increase to €1,404 euros this year from €1,134 euros last year and to €1,484 euros next year. Wages are growing significantly faster than prices: real wages, taking into account the impact of price increases, are expected to grow 4.8 percent this year and 3.4 percent next year.
Consumer price increases will slow down compared to the previous two years. Next year energy prices are expected to fall, but consumer prices and services and food prices will increase.
The government's structural budget is in deficit from 2019 to 2023. In order to decrease the deficit savings will need to be made in the spring because, in accordance with the statutory budgetary rules, the government must improve its budget position by at least 0.5 percent of GDP compared to the previous year.
The structural deficit is projected to be 1.4 percent this year, 0.6 percent next year and 0.5 percent in 2021.
Government debt is projected to decline to eight percent of GDP next year and to decline further, to 6.7 percent of GDP by 2023. No new loans are projected to be needed.
The tax burden is close to 33 percent of GDP this year and in the next two years, and is expected to decline to 32.6 percent of GDP in 2022 and 32.4 percent of GDP in 2023.
The ministry's summer economic forecast, key in drawing up 2020's state budget, due in late September, was formally presented on Monday.
Recent comment from both the ministry and the Prime Minister Jüri Ratas have said that there may be scope for increased expenditure in some areas, but a general tightening of belts is on the cards.
Editor: Helen Wright