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Friday, 29.03.2024, 06:23
Swedbank raises Estonia's 2017 economic growth forecast to 4.2%
In August the bank estimated Estonia's gross domestic product growth to
total 3.5% this year and 3.2% in 2018. In 2019 the country's economic growth is
to total 3%, which is 0.3%age points more than in the previous forecast, Swedbank said on Thursday.
"Although external demand has substantially increased this year, the
branches of activity that are directed at domestic demand are the biggest
contributors to economic growth, and economic growth has become broad-based.
With the strong economic growth, the increase in the productivity of companies
has improved and the gap between wage increase has closed up," Swedbank's chief economist Tonu Mertsina said when introducing the
economic outlook.
"This means that companies' price-based competitive ability and
profitability will improve. In our estimation, external demand will remain
strong also next year and will allow Estonian companies to increase their
exports," Mertsina said.
He added that after a three-year decline, investments have started to grow
this year. "The confidence of Estonia's industrial companies has risen to
the highest level in six years and the rate of employed means of production has
exceeded the long-term average, along with the growth of demand and production
volumes," Mertsina said, adding that as a result it can be forecast that
the private sector's investment activity remains on the present level.
"Government sector investments mainly in buildings and constructions
have increased, which explains the strong growth in construction works
commissioned by the state. In the near future the strong growth of government
sector investments should continue, which is supported by the impact of
European Union funds increasing," the economist said.
In spite of strong consumer confidence, the growth of private consumption
has slowed down, as expected. One of the reasons is the sudden deceleration in
the wage growth adjusted for inflation. As a result of raising the share of
income exempt from income tax in 2018, the income used by most wage earners
will increase once again and this will have a positive impact on private
consumption.
The financial state of companies and households is strong and the state's
finances are in order. In the current economic growth cycle the Estonian
economy does not need any stimulation from the state. It would be wise to use
the better opportunities for carrying out structural reforms and investing for
raising efficiency.
Due to higher raw material prices, an increase in excise duty rates and
strong wage growth, the increase in consumer prices accelerated this year to
more than 3%. Next year price increase should slow down to 3%.
The number of unemployed is to increase as a result of a change in the social
benefits system of the disabled which will force them to start looking for a
job. Although the demand for workforce will grow, its supply is limited and
therefore the increase in employment will be modest in the next two years.