Estonian enterprises need to put more effort in to improve their productivity growth

Estonian enterprises need to put more effort in to improve their productivity growth

  • In a post-crisis period, the growth of Estonian labour productivity has been weak
  • Estonian labour productivity is lower than majority of European Union member states
  • Estonia is losing price competitiveness against main trade partners

After the recovery from the financial crisis, the growth of Estonian labour productivity has been weak, while labour costs are growing. The growth of productivity dropped rapidly when the economy was hit by the financial crisis and never regained the same pace of growth – between 2002 and 2007, average hourly productivity growth was 6% in real terms, whereas between 2012 and 2017 average hourly productivity was only 2% in real terms. In the past 15 years, Estonian labour productivity has strengthened compared with the European Union member countries’ average; however, in the post-crisis period, the growth of productivity compared with other member states has moderated. Due to growing labour costs and low productivity growth, Estonian enterprises have been losing price competitiveness against their trade partners, although they have managed to slow this pace a bit. Even though, theoretically, Estonian companies are losing their price competitiveness, they have gained market shares in most of their main trade partners’ markets (Germany, Sweden, Finland, Latvia, and Denmark); at the same time, however, the growth of their profits has slowed or even decreased. Estonian enterprises should pay more attention to productivity growth; otherwise, they will lose their international price competitiveness and should accept smaller profits, as it will be difficult to adapt to growing labour costs. Thus, enterprises should invest more in automatisation of work processes, new and faster technologies, employee training, and efficiency of the supply chains to improve the level of productivity and reduce costs of production, in order to boost the share of value added in turnover.

PDF Estonian enterprises need to put more effort in to improve their productivity growth

For more information please contact Ms.Marianna Rõbinskaja, +372 888 7925, marianna.robinskaja@swedbank.ee.

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