Weekly Briefing, Vol. 46. No. 2 (EE) December 2021
Estonia Economy development 2021 as a year of economics: a sign of positivity
It has been quite a non-ordinary year in the midst of the already ordinary pandemic. At the same time, it would have been very surprising, if the Estonian economy had not been impacted by this ongoing global redesign in political economy, which the world had been experiencing every single moment in 2021. By the end of the turbulent twelve months, as indicated by the Estonian Institute of Economic Research, the population’s confidence, economics wise, is decreasing because “companies are dealing with soaring input prices, a labour shortage and raw material availability”[1]. From the other side, despite the downward trend in consumer confidence as well as the factor of price inflation, the entrepreneurial segment of the society is fairly confident in a positive sense – as reported, in Estonia, “[c]ommerce and industry have got through the crisis relatively well”[2]. What are the digits that support such claims?
The end of the year saw the producer price index of industrial output (the economic indicator that ‘tells’ about changes in the producer prices of industrial goods manufactured in the country for the domestic segment of the market and for export) having increased by 24.7 per cent if to be compared with December 2020 (see Table 1)[3]. The figure, however, represents the generalised level, and, if one goes in-depth of the data, it will be possible to detect that the aforementioned index “was affected the most by price increases in electricity and heat energy production, in the manufacture of wood and wood products and in the manufacture of metal products”[4]. Contextualising the situation with December 2020, the export price index wise, it increased by 20.0 per cent, while the import price index rose by 26 per cent, if compared with the same point in time (see Figure 1)[5].
Table 1
Change in producer price index of industrial output by economic activity, Dec 2021
Source: Statistics Estonia
Figure 1
On the intra-market major types of activity, the turnover of the retail trade 2021, the segment-focused enterprises managed to achieve the nearly EUR 9 billion level, having rising it by 12 per cent, if compared to 2020[6] (see Figure 2). To see the differences between the clusters of the segment, one can detect that the turnover of grocery establishments had an annual increase of 4 per cent, but when it would come to the retail sale of automotive fuel, it rose by 31 per cent.[7]
Figure 2
On the macro-level, the above specified developments are reflected in how actively the market is creating new jobs. The process is well-monitored by the Estonian Central Bank, and, closer to the end on 2021, the institution’s Vice-President Ülo Kaasik made a decent number of observations, which are worth summarising into an extensive quotation:
Commodity prices will slow down in the next year, [and] while energy prices will not likely increase as much next year, they may stabilise at their current high levels. […] If we are currently mostly talking about increasing energy prices, then a large part of next year’s inflation will come from other factors. […] In addition to the rapid inflation on world food markets, domestic price pressure has also begun to grow, through which the increased wages carry over to the prices of other services and sectors. […] [C]ompanies in most sectors have notified that they intend to increase production and hire more people. […] Never before have Estonian entrepreneurs said that they are working at full capacity. […] The situation on the labour market continues to be tense. Unemployment has almost dropped to pre-crisis levels and we see that it will remain low for a long time. Our estimates show that wage increases over the coming years will be rapid.[8]
This status quo, objectively, made a spillover effect on Estonia’s real estate prices, which were growing in the country throughout the year – for example, the housing price index got up by “17.3 per cent in the third quarter year-on-year”, and, on a more specific indicator, “the prices of apartments in Estonia grew 16.6 per cent year-on-year in the third quarter of 2021”, while “[t]he prices of houses jumped 19.5 per cent in the same period”[9]. Astonishingly, as indicated by Swedbank, the average home loan for Tallinn in 2021 was EUR 119,000[10], a comparable figure to the price of a seaside villa in Spain. Moreover, according to a representative of the Estonian Central Bank, the country’s real estate market shows no sign of cooling off in 2022 – there is a particular forecast that, due to a prospective inflation (there is a likelihood that the wages will be growing by 8 per cent), “that real estate prices will grow faster than wages, remaining around 10 per cent”[11]. Speaking on the topic, Tõnu Toompark, an analyst on real estate, singled out a range of interesting trends for this segment of the Estonian economy:
Real estate prices have gone straight up since 2009. […] But there is always the inflation component, on the other hand, wages in Estonia have gone up 6 per cent in the last decade and then some. Growth in income and wealth has been the main driver of real estate prices. I do not see a drop for 2022, because there is the danger of inflation and demand is high. [The average price per square meter in Tallinn is EUR 2,685, but real estate is acquired in all parts of Estonia in different kinds of price ranges. People buy first and second homes and rental investments also play a large part]. There are more IT millionaires who are not buying themselves homes, but are making rental investments and real estate investments on a larger scale[12]. […] [[T]he average Estonian wage is enough to buy the average Estonian apartment – a two-room apartment in a five-story or nine-story building]. There are still more buyers than there are offers. Are there more residents than there are offers, that is another question.[13]
Before the pandemic, Estonia had been gradually assuming a respected role among the EU-based providers of higher education. Most probably, when the COVID-19 becomes fully operationalised on the level of institutions and stable policies to contain it, the country will be aiming at regaining and building on its position as a place of good universities. Even at this point in time, in the academic year 2020/2021, international students who have studies in Estonia “paid more than ever before in labour taxes: a total of EUR 16 million”[14]. Interestingly enough, these newcomers in to the country are finding their work in information-, education-, and communication-associated fields, while also get engaged with different start-ups of which Estonia is known worldwide. Kadri Rootalu, Data Scientist at Statistics Estonia, reports that “the number of international students in Estonia decreased, but they still accounted for 11.6 per cent of the total”, and that “[c]ompared to local students, international students were more likely to work in start-ups: 15 per cent of working international students did so compared to 3 per cent of working local students”[15]. Intriguingly, the previous academic season’s records show that the “total tax receipts from international students who graduated in academic year 2019/2020 and continued working in Estonia was EUR 4.5 million”[16] only. In a direct and an indirect way, it could be considered a good sign for a country’s economy when international students trust it by coming over to study and work, being ready to stay on and contribute to the socio-economic development of the host-nation.
[1] ‘Institute of Economic Research: Estonia’s economy cooling’ in ERR, 19 January 2022. Available from [https://news.err.ee/1608471083/institute-of-economic-research-estonia-s-economy-cooling].
[2] ‘Institute of Economic Research: Estonia’s economy cooling’.
[3] ‘Industrial producer rose by nearly 25% year on year’ in Statistics Estonia, 20 January 2022. Available from [https://www.stat.ee/en/node/258599].
[4] Eveli Šokman as cited in ‘Industrial producer rose by nearly 25% year on year’.
[5] ‘Industrial producer rose by nearly 25% year on year’.
[6] ‘The turnover of retail trade enterprises increased by 12% last year’ in Statistics Estonia, 28 January 2022. Available from [https://www.stat.ee/en/node/258683].
[7] ‘The turnover of retail trade enterprises increased by 12% last year’.
[8] Ülo Kaasik as cited in ‘Economic forecast: Labor shortages and food price inflation expected’, ERR, 21 December 2021. Available from [https://news.err.ee/1608442667/economic-forecast-labor-shortages-and-food-price-inflation-expected].
[9] ‘Real estate prices growing faster than wages’ in ERR, 23 December 2021. Available from [https://news.err.ee/1608444875/real-estate-prices-growing-faster-than-wages].
[10] ‘Real estate prices growing faster than wages’.
[11] Taavi Raudsaar as cited in ‘Real estate prices growing faster than wages’.
[12] Bold is ours.
[13] Tõnu Toompark as cited in ‘Real estate prices not expected to drop in midst of wage increases’ in ERR, 5 January 2022. Available from [https://news.err.ee/1608455978/real-estate-prices-not-expected-to-drop-in-midst-of-wage-increases].
[14] ‘International students and graduates continue to contribute more in taxes to the Estonian economy’ in Statistics Estonia, 12 January 2022. Available from [https://www.stat.ee/en/uudised/valisuliopilaste-ja-vilistlaste-maksupanus-eesti-majandusse-suurenes-taas].
[15] Kadri Rootalu as cited in ‘International students and graduates continue to contribute more in taxes to the Estonian economy’.
[16] ‘International students and graduates continue to contribute more in taxes to the Estonian economy’.