Financial Stability Review 2023/2
The economy recovering only slowly is weakening the debt servicing capacity of companies and households. The Estonian economy has been shrinking for six consecutive quarters by now, while interest rates have risen sharply at the same time for the loan repayments of borrowers. Companies were helped in coping with the increased loan payments until very recently by sales revenues and profits that were growing until the first quarter of this year, and by the buffers they had accumulated earlier. The capacity of households to service their debts has remained good because of their savings and because unemployment has been low and wage growth fast. The weakness of the economies in Estonia's main trading partners, the decline in the competitiveness of Estonian companies, and the persistent high level of uncertainty all mean though that no swift return to rapid growth in the Estonian economy should be expected. Corporate sales revenues and profits started to fall in the second quarter of this year and unemployment has started to rise with a lag. It is important for the future capacity of companies to service their debt that their sales income not fall constantly for a long time and that unemployment not rise significantly.
