The decline in the national economy of Estonia will last longer than previously expected. The Estonian economy will not return to growth in 2024.
This is stated in the updated economic forecast of the Estonian Bank, the Estonian news portal ERR.
The regulator noted that the decline is associated with a poor situation in the target export markets and the decreased competitiveness of Estonian products.
Estonia Bank predicts the reduction of the internal gross product by 3.5 percent this year and by 0.4 percent in 2024. If this forecast is correct, then the decline in the Estonian economy will last at least three years.
The Central Bank noted that 2023 turned out to be more severe for Estonia’s economy and the decline will also be longer than previously expected.
Sales in the domestic market are limited by people’s uncertainty about the future, which forces them to cut expenses and increase savings, and sales in foreign markets are complicated by a worst situation in Estonia’s main export markets compared to the European economy as a whole, as well as an unprofitable exchange rate With Scandinavian countries.
An important factor is also the growth of production costs, the destruction of many previous supplies and business models as a result of the conflict in Ukraine. In addition, an unstable situation and high interest rates did not contribute to the influx of new investments.
All these factors together will lead to the fact that next year the economy will not be able to return to growth. Opportunities for faster growth at about 3 percent per year will appear only in 2025 and 2026.
The forecast of the Estonian bank notes that the consequences of an economic decline will gradually begin to affect the labor market more strongly, the growth of unemployment will reach the peak in 2024 and will be 9 percent.
In this situation, the growth rate of wages will slow down to 6.6 percent in 2024 and up to about 5 percent- in subsequent years.
, according to the Central Bank assessment, increasing the minimum wage by more than 13 percent may turn out to be excessive for many companies with low productivity and low wages, and part of the growth of unemployment will be associated with the cessation of their activities.
according to the forecast of the Bank of Estonia, the growth rate of prices next year will slow down from 4-5 percent to 3.5 percent, and in 2025-2026-up to 2 percent. In these conditions, the compilation of the state budget will become an even more difficult task.