What economic forecasts for 2023
according to the Central Bank of Estonia?
The inflationary and energy crisis affecting the European Union has been particularly severe in Estonia, with the highest inflation rate in Europe in 2022 (19.4%).
Yet demand has held up, thanks in particular to high levels of disposable savings.
This has enabled companies to achieve relatively good results.
However, the collapse in demand is beginning to show and is likely to accelerate in Q1 2023.
As a result, the macroeconomic outlook for 2023 is darkening.
A long-term exit from the crisis is possible at the expense of a balanced budget, a first for Estonia.
A macro-economic situation that has held up relatively well in 2022
Added to this is the high level of savings available as a result of the Covid crisis, which further supports demand and creates the first inflationary pressures.
The war in Ukraine, which began in February 2022, accentuated these tensions and made the situation uncontrollable: between November 2021 and November 2022, inflation was almost 22.5% (then 19.4% from January 2022 to January 2023).
While this helped to accelerate inflation, it also enabled companies to weather the crisis well: over the course of 2022, the unemployment rate fell by one point, from 6.2% to 5.2%.
By way of comparison, the European average is 6% at the end of 2022, and France 7.1%.
In addition to sustained demand, the post-Covid recovery is also responsible for this buoyant job market.
Labor shortages may even have emerged in certain sectors, and salaries have risen by 8.7% over 2022, with the average salary standing at almost EUR 1,682.
This should be qualified by the fact that, at the same time, the Ministry of Finance announced growth of 1%.
In any case, these figures contrast sharply with the strong dynamism of 2021, with its 8.5% growth.
Public finances were relatively sound over the year: spending to support the population came late in the year, while revenues rose sharply from the start, thanks in particular to sustained demand despite inflation.
As a result, the public deficit is below 2% for 2022.
A gloomy outlook for 2023
This drop in domestic demand, combined with higher production costs due to energy inflation, is a major threat to businesses.
We must also take into account the direct consequences of European sanctions against Russia: the Central Bank of Estonia estimates that 11% of Estonian employees depend on products of Russian origin.
Faced with these difficulties, the companies concerned are likely to lay off over 1,000 employees.
Added to this are the Ukrainian refugees: at the beginning of December 2022, almost 6,300 of them were registered as unemployed, i.e. 12.6% of the registered unemployed.
In 2023, unemployment is set to soar: the Central Bank of Estonia anticipates an unemployment rate of almost 8.5% in 2023 and 8.7% in 2024.
Similarly, inflation will fall but remain high: the Central Bank of Estonia forecasts a 9.3% rise in prices in 2023 (compared with 6.7 for the Ministry of Finance).
Although the government measures introduced in autumn 2022 may have contained energy inflation somewhat, falling temperatures are likely to push it up again.
This uncertainty, combined with falling domestic and foreign demand and rising interest rates, is discouraging companies from investing.
In fact, the budget deficit will increase exponentially in 2023: on the one hand, revenues will fall due to the decline in consumption and the rise in non-taxable social minimums, and on the other, expenditure will rise sharply, notably due to the increase in family allowances and the rise in public-sector wages to bring them into line with the private sector.
Consequently, without major policy changes during the year, the budget deficit will be 4.6% of GDP in 2023.
A long-term way out of the crisis at the expense of a balanced budget
However, the Central Bank of Estonia anticipates a strong recovery in 2024, with growth of 3.1% (compared with 3.0 according to the Ministry of Finance) and inflation down to 2.8% (1% according to the Ministry of Finance).
In the long term, this recovery will help to reduce unemployment, which is expected to remain at 8.7% in 2024, before falling to 7.6% from 2025 onwards.
In the absence of major geopolitical or economic developments, the budget deficit should rise to 4.6% of GDP in 2023, then fall by 0.7% a year to 3.8% in 2024, 3.1% in 2025 and fall back below 3% in 2026, with a deficit of 2.6% of GDP.
According to the Central Bank of Estonia, as public spending is incompressible due to its strategic importance, the only room for manoeuvre available to the State is on the revenue side.
The Central Bank concludes its report by pointing out that the tax burden is one of the lowest in the European Union (33.3% of GDP), whereas the EU average is around 40%.
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Contact us!
✉ contact@ccife.ee
CCI France-Estonie is proudly affiliated to CCI France International, the worldwide network of French Chambers of Commerce and Industry.
Accelerate your business thanks to the 1st private network of French companies in 94 countries: 119 chambers | 33,000 companies | 4,000 events | 300 committees | 1,200 exclusive advantages
Exclusively for members of the CCI Françaises à l’International, discover the CCIFI Connect app.
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Stay informed!
Made with ❤ by Cycoma
Copyright 2024 Chambre de Commerce et d’Industrie France Estonie
