The latest economic forecast from the Estonian Central Bank (Eesti Pank) expects the recovery of the Estonian economy will be delayed until the second half of the year, but the recovery will be faster. The central bank estimates there will be two sources of growth in the second half of the year as the restrictions on activities are lifted and consumption spending rises sharply temporarily as money is withdrawn from the second pension pillar.
The economy will recover later than was forecast in December but will do so more sharply. The exit from the crisis at the speed hoped for earlier is being hindered by the new and aggressive outbreak of infections and the restrictions that have been imposed in consequence. Some services like hotels, restaurants, tourist services, passenger transport, and entertainment will remain in a slump for a longer time and may start to exit the crisis only in the second half of the year. In consequence, the recovery of the economy will be pushed back to the second half of the year.
The economy will return to normal at about the same time that the first wave of withdrawals is made from the second pension pillar. More money will be withdrawn in the first wave than was earlier anticipated, as it is unexpectedly people with larger pension savings than the average who are leaving in the first wave. The average amount in each first-wave withdrawal from the second pillar will as a result be notably larger than was previously estimated. The steep rise in the amount of disposable income of households will be reflected in increased consumer spending, which will give a strong temporary boost to the economy in the second half of the year.
As conditions remain difficult in the first half of the year, growth in the economy will be 2.7% this year, but that will increase to 5% in 2022. The industrial sector and goods exports, which are linked to international goods markets, are suffering less from the Covid-19 restrictions. International demand for industrial output and global trade have already returned to where they were before the crisis, offering opportunities for growth to the exporting branches of the Estonian economy. Like it did last year, a broadly based recovery in the economy depends largely on the removal of the restrictions hindering domestic consumption. As the course of the pandemic and the restrictions imposed because of it are hard to predict, there remains a very great deal of uncertainty about the outlook for the economy.
The wave of the pandemic this spring will not raise unemployment very much, but it will increase the risk of long-term unemployment. Unemployment will rise because of the prolonged crisis, but not by as much as it did last spring. The tighter restrictions are making it harder for several sectors to operate and are reducing demand for labor, but tourism and related areas were already in difficulties before now, and adjustments in employment have already largely been made. If the crisis drags on though and the tourism season is a failure, long-term unemployment will probably rise.
The crisis has had a modest impact on wages. Wages have continued to rise rapidly at around 5%, even despite the rise in unemployment. Wages have risen in most branches of the economy, including those where employment has fallen. Households have in consequence been able to save more and the amount added to household deposits each month has been twice what it was before the pandemic. Corporate deposits have also increased rapidly, showing that there is probably little pressure for wages to fall.
