Ülo Kaasik, Deputy Governor of Eesti Pank, told a finance conference in Pärnu that 2017 was a good year for the Estonian economy, but that long-term success will need companies to invest a lot more than they are at present.

“Companies have been making investments in recent years, but not enough. The lack of investment has been compensated for by increases in the number of employees. This cannot continue for long as 70% of the people of working age in Estonia are already in work, which is one of the highest rates in Europe. If we want to catch up with the wealthier countries, more investment by the private sector will be needed”, he said.

He added that it would be reasonable given the current phase of the economic cycle for the government to run a budget surplus and to postpone some of its spending. The construction industry is working flat-out and the more the government directs its own spending to construction, the less the private sector will be able to make its own investment in the sector.

The Estonian economy grew by around 5% in 2017 and investment contributed to that growth. General government investment was given a boost by more efficient use of Structural Funds. The general government invested mostly in buildings and facilities and in transport vehicles. Investment by companies benefited from the favourable position of foreign markets and the desire to increase production capacity. Estonian companies invested a smaller share of their value added than the average for companies across the rest of the euro area. This is not enough if the Estonian economy is to catch up with those of wealthier countries.

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Eva Vahur
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