In Estonia, the wage growth slowed to 7.2% in the second quarter, with the economy weak and inflation falling. Growth in wages weakened in all areas of activity in both the public and private business, but the decline in growth was notably sharper in the public sector than in the private one. The mean wage passed the 2000 euro mark for the first time, reaching 2007 euros. Lower wages rose faster than higher wages, largely because of the minimum wage rise, and so wage inequality narrowed slightly.

Unemployment reached 7.6% in the second quarter and was about a percentage point higher than a year earlier due to the recession. Employment was also higher than it was a year earlier, meaning that the rise in unemployment was caused by the exceptional level of activity in the labour market. The labour market has remained in better shape than expected given the extent of the recession in recent years. As the recession has eased, so the labour market indicators have become more stable.

Data from Statistics Estonia put Estonian GDP down 1% over the year in the second quarter and at the same level as in the first quarter. Statistics for the past half year indicate that output has started to grow in several branches of industry. This is because of recent investment in expanding capacity, in food production for example, and also because energy prices have fallen and so competitiveness has improved.

Not all branches of industry are optimistic, it would be more accurate to say for the industrial sector as a whole that expectations of decline have lessened. The expectations of companies within branches of industry vary, the general trend in output expectations appears to have become brighter than at the start of the year or at the same time a year previously.

Investment has remained stable despite the enduring recession. Some production capacity stands idle during a recession and a fall in profits makes it harder to fund new investment, so investment is usually weak when the economy turns down. Investment has remained quite strong though, which indicates that companies have confidence in the economy recovering and in future growth.

One reason for the weakness in the economy has been the paucity of consumption, but consumption by households as a ratio of wage income is similar to what it was in 2019 before the Covid-19 pandemic. The interest payments of households have increased in the meantime though, and this has restrained their ability to consume. Statistics on financial transactions show that people saved only quite small amounts during the recession, but savings have now recovered to close to where it was before the pandemic.

The narrative says that if the government starts to limit its fiscal stimulus to the economy, then growth will be slower in the coming year than was forecast. This needs to happen though to reduce the debt burden of the public sector and stem the future growth in interest payments, as this will help maintain competitiveness in the longer term.

It is important to reduce the budget deficit, and also for the business environment to continue on the economic development and the state budget. With a persistent high level of core inflation, achieving growth in the economy will become harder than it has been, hence it’s essential to maintain the competitive advantage of the business environment.