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Estonian economy: recent developments and future outlook. Märten Ross , Deputy Governor, Eesti Pank Tallinn, 25/11/2008. Broad picture: some structural facts. High growth rate was nice, but was expected to slow down by any economic logic.
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Estonian economy:recent developments and future outlook Märten Ross, Deputy Governor, Eesti Pank Tallinn, 25/11/2008
High growth rate was nice, but was expected to slow down by any economic logic
Inflation has been high in 2007, but price level growth in euros has been low in CEE
Wages are still competitive vis-a-vis neighbours (average wage still below 900 EUR; but in Pisa tests: 5th) Source: Eurostat
Even the prices of real estate never reached excessive levels in comparative terms
Debt level is not very high in regional comparison(household debt to GDP (left scale) and change in debt-to-GDP ratio (right scale) in Nordic and Baltic countries)
What has driven recent developments? • Favourable external environment until 2007: • Period of relatively fast growth and low interest rates • EU accession: • Enhanced labor mobility and strengthened wage expectations • Increased productivity (incl in export sector) • Fastened financial integration, ie lower interest rates and longer maturities in lending • Economy adjusting already at least from 1st half of 2007 as these factors either matured (EU accession) or reversed (external sector)
Wage growth that was driven by labor market opening is cooling down
The banks' external financing need has decreased already due to lower credit growth
External environment should keep us all conservative regarding the growth environment
However, inflation outlook is already improving strongly and euro adoption has become real possibility
Ability to withstand global shocks? • Labour market is flexible • wage setting uncentralised • (Local) financial sector capital and liquidity buffers are high • Reserve requirement to deposits is about 30% • Government financial position very sound • 2% debt vs over 9% foreign reserves
But good profitability of previous years has increased the capital buffers of banks
Thanks! For further information please contact: Public Relations Office of Eesti PankLivia Kulm, Livia.Kulm@epbe.ee Tel: +372 6680745 www.eestipank.info