In a presentation at the annual conference of the Estonian Economic Association, Ardo Hansson, Governor of Eesti Pank, explained that the competitiveness of the exporting sector has been under higher pressure than before, as was shown by the loss of market share in export markets in 2015.

In his presentation in Pärnu on Wednesday, Mr Hansson noted that the global economy is recovering very slowly and several important trading partners are weak, while the latest economic forecasts are more pessimistic than earlier ones. “The slower recovery in external markets than had been expected has had a clear and visible effect on the Estonian economy too, making it harder to achieve faster economic growth. The fight for market share has grown sharper and the competitiveness of the Estonian exporting sector is under greater pressure than before because productivity has been growing slowly and even declining in some areas”.

Mr Hansson said that the outlook for the Estonian economy depends on a recovery in external demand, and especially on the ability to increase production potential in Estonia. “Estonia has some advantages over the other countries in Europe when it comes to achieving faster economic growth, as we have stable government finances, a low sovereign debt, a flexible labour market, relatively low debt levels in the private sector, and favourable financing conditions”.

He observed that there are mismatches in the Estonian economy, with low economic growth and fast consumption growth, lower unemployment than during the boom, and low productivity growth at the same time as rapid wage growth. “The Estonian economy is standing at a crossroads and if things go well, the problem facing the economy in the years ahead will be labour shortages. If they do not go well, if productivity does not rise, wage growth will start to slow sharply and it is possible that wages will start to fall as unemployment increases”.

He pointed out that the further fall in oil prices at the start of the year is holding back any rise in inflation, adding that low inflation in the euro area allows monetary policy interest rates to be held down.

The presentation by Governor of Eesti Pank Ardo Hansson to the conference is available in Estonian on the Eesti Pank website.

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