A longer lasting crisis will inevitably lead to changes in the economy
Senior managers of Eesti Pank attended a meeting of the Economic Affairs Committee of the Riigikogu on Tuesday, and noted that the longer the crisis lasts, the more need there will be to ease social problems. It should also be understood that the Estonian economy that emerges from the crisis may be quite different.
Making a presentation to members of the Economic Affairs Committee, Deputy Governor of Eesti Pank Ülo Kaasik said that the longer the recession lasts, the more social problems there will be that the state will need to handle. He added that it would be sensible when distributing social benefits to give priority to those benefits that already exist, as they can be given out more quickly.
He also emphasised that Estonian companies have managed to adapt rapidly in previous economic crises, and if the downturn now lasts longer there will be no choice but to do so again. “It is evident that if the downturn lasts for a longer time, some sectors will be stronger in the future and that is where employment will increase. Other branches of the economy could see some contraction though. This change is difficult for companies and painful for people, but in the long term the movement of employees to stronger sectors will help wages for people in Estonia to rise faster”, he explained.
Eesti Pank considers the initial focus should be on giving the most urgent short-term support, as that will help people and companies to survive the crisis period. It would be wise to make preparations for the longer-term aid provided in the government’s second support package. The central bank considers that these decisions should be taken when it is clear that the restrictions will remain in place longer than initially planned.
Eesti Pank explained to the Economic Affairs Committee of the Riigikogu how the duration of the restrictions may affect the economy and the state budget. If the restrictions imposed by the emergency situation are eased at the start of May, the Estonian economy could shrink by 6%. If the situation eases at the start of August, the Estonian economy could shrink by 14%. Eesti Pank calculates that each additional week of the restrictions will shrink the economy by 0.5%.
Eesti Pank also informed members of the committee about the steps taken by the euro area central banks to maintain access to favourable lending conditions in countries of the euro area so that the banks would be able to continue lending.
Eesti Pank Governor Madis Müller, Deputy Governor Ülo Kaasik and Head of the Economics and Research Department Martti Randveer met the Economic Affairs Committee of the Riigikogu.