Analytics, Banks, Economics, EU – Baltic States, GDP

"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. Caution is warranted with headwinds continuing in the external environment with global trade uncertainty and US-China trade negotiations in progress," the economic outlook by Luminor says.

It says that consumption will which be a key growth engine for Estonia in the next years. The strong labor 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.

"Prioritization 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. 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," Tonu Palm, chief economist at Luminor Estonia, said.

He said that Europe faces increasingly global competitiveness challenges with the speed of global technological and digital transformation under way. 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 wage in Estonia has grown by no less than 58 % since 2011, Palm said that as a remarkable achievement, the still very much half way income convergence has already manifested itself in four consecutive years of population growth. Population decline has now clearly turned to the growth path with remigration flows and attracting skilled foreign labor, including from from developed countries, to fill the increasing labor demand.

Estonia's GDP per capita reached ca 79% of the average for the EU28 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. When we add to it some 20,000 foreign workers who stayed in Estonia as short-term workers, this indicator becomes even more remarkable. In this way Estonia is gradually becoming attractive for labor from the European Union, which in its turn helps to ease the main problem of the labor market -- increasing shortage of skilled labor, according to Luminor.

The Estonian economy has achieved significant success in the field of digital economy. On the back of expanding ICT sector it is possible to raise the value-added of also other branches, including the industry. In addition, digitization of companies and more active introduction of new technologies would enable to further increase the share of the export of services, which is a direction followed by an ever growing number of economies, Palm added.