Updated 27.03.2020

The main priority in dealing with Covid-19 is the life and health of people in Estonia and the economic impact is secondary to that. It is entirely understandable that the state wants to introduce various restrictions in order to minimise the risk to public health, and to spend more to ensure public health and well-being. Even so, consideration is needed of economic policy measures that would alleviate the harm to the Estonian economy caused by the increasing spread of the coronavirus and the consequent restrictions.

Here follows Eesti Pank’s analysis of the economic impact of the coronavirus and its recommendations for economic policy measures.

1. The economy is likely to shrink by more than 6%

  •  The economic crisis has so far affected services businesses and the transport sector the most
  •  How much the economy shrinks by will depend primarily on how long the restrictions last in Estonia and elsewhere, and how well companies are able to survive the crisis
  •  If the situation eases by the start of May, the Estonian economy could shrink by 6%
  •  If the situation eases by the start of August, the Estonian economy could shrink by 14%
  •  If the situation eases quickly, the Estonian economy could rebound quite quickly and growth may be fast next year. If the restrictions remain in place for longer, the economy will recover more slowly
  •  Government assistance should be directed to where it will help prevent long-term economic damage

Read also The economy is likely to shrink by more than 6%

2. The virus has affected many parts of the economy that are primarily connected with tourism, but its effects will be spread across the whole economy

The virus has so far mainly affected tourism sectors in the economy. It is very possible though that the impact of the virus will be passed on to the whole of the economy, especially if tighter restrictions are imposed to guard against the virus.

3. The virus will impact the economy through four channels:

  1. The direct impact of restrictions guarding against the virus, as they will prevent businesses from working.
  2. Tourism and travel services, as people become more cautious and recommendations are given to cancel or postpone travel, or travel is even prohibited to certain areas.
  3. Exports and imports and production, as foreign demand declines in countries that have been affected more by the virus. Hold-ups in international supply chains will also have a harmful impact.
  4. Private consumption and investment, as a rapid rise in the number afflicted could lead people to postpone spending in order to avoid the risk of infection or because of general uncertainty, and companies to limit their investment.

4. The economic policy goal in alleviating the impact of the virus is to hold unemployment down and avoid any rapid rise in bankruptcies

The aim is to reduce the chances of temporary problems causing long-term harm to people and companies. This means the priority is to avoid temporary problems causing a wave of bankruptcies among businesses and a sharp leap in unemployment. Estonia is better placed than it was when it faced the crisis of 2008-2009, as there are no major imbalances in the Estonian economy, while the economy as a whole and the financial sector stand on firm foundations.

5. Three recommendations for how the government can support the economy

  1. Supportive measures must have an immediate impact. Experience from countries that have seen large numbers of cases indicates that the virus can affect the economy extremely quickly. This makes the most important measures those that can be taken quickly and that have an immediate impact on the economy.
  2. Supportive measures must be well targeted. Initial data indicate that different parts of the economy are affected in different ways by the virus. This makes it important that the measures taken should help resolve problems specifically among those sectors and people that have been most affected.
  3. Supportive measures should be planned as temporary. Current information suggests that the impact of the virus on the economy will be temporary. This suggests that all measures, whether on the spending or revenue sides, should also be temporary in nature. Most countries have followed this principle in their packages of economic policy measures.

6. Measures to support the economy should be based on data and analysis

Although there are few data on the Estonian economy that are frequently updated and very recent, the maximum effort should be made to collect those data and then to make good use of them. Eesti Pank is looking for ways to work with the banks so that the data the central bank uses in its analysis of the behaviour of companies and households would be submitted faster and more frequently than usual.


No interruptions to the circulation of cash during the state of emergency

Eesti Pank is in constant contact with the banks and all the ATMs are working without interruption, and all the commercial banks are also being supplied with cash without any interruption. There have been moments in the past few days when withdrawals of cash from ATMs have temporarily increased. The cash handling company G4S has kept all of the ATMs full without interruption and even when demand has temporarily increased. Eesti Pank is ready to meet all the requirements of the banks for additional cash.

Given the spread of coronavirus, Eesti Pank recommends that people use bankcards where possible for paying, with contactless cards particularly good at preventing the spread of the virus, or pay with their smartphones. During the state of emergency, the commercial banks have raised the upper limit on contactless payments to 50 euros per payment. Those who can connect their bankcard to their mobile phone through the Apple Pay or Google Pay apps can use their mobile to pay amounts of more than 50 euros. Hygiene rules must be followed carefully by those who have touched cash or have entered their PIN in a card payment terminal.