Flash comment: Estonia - May 29, 2019
Wage growth has not decelerated
In the first quarter of 2019, the average full-time gross wage amounted to EUR 1341, up by 8.0%, in a year. The average gross wage increased in almost all sectors. Wage growth was more rapid in construction, where volumes have grown markedly in recent years. The average wage was the highest in finance, energy, and ICT in the first quarter. A rapid growth in the average wage is supported by a shortage of labour and a hike in the minimum wage. Minimum wage will rise to EUR 540 in 2019, up by 8.0%, over the year.

Consumption grew in line with wages
The average net wage rose by around 6% in the first quarter, over the year, around the same rate as the growth of retail sales. The average real net wage grew by around 4%. That is much less than last year when net incomes where substantially lifted by an income tax reform. Due to a strong wage growth and higher social transfers, families’ assessment of their financial situation is the highest on record and well above the level of the previous economic boom.

The stock of deposits is growing fast (+9.5%, over the year, in April 2019), but many households still have no or very limited financial reserves. According to the Bank of Estonia, 40% of households have less than EUR 1000, and a fifth of families less than EUR 100, in savings. 51% of families manage to save, according to the Estonian Institute of Economic Research.

Wage growth is expected to stay rapid
The number of job vacancies and the number of persons leaving on their own initiative remained high. Thus, wage pressure will persist. The average gross wage should grow by around 7% this year. Rapid wage growth hurts exporters more than companies who sell their goods or services in the domestic market as Estonian companies are usually price takers in the global market, unable to pass higher costs to their customers. Estonian companies’ assessment of their competitiveness has deteriorated since the second half of last year, in all markets, in and outside the EU.

For more information about this report, please contact Ms. Liis Elmik, liis.elmik@swedbank.ee, +372 888 7206.

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