17 December 2019

1. Eesti Pank economic forecast
2019-2022
17 December 2019

2. The decline in trade has pulled global
industrial production down
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
Source: CPB World Trade Monitor, three-month average data
2014 2015 2016 2017 2018 2019
yearly change in global
trade
yearly change in
global industrial
production

3. The International Monetary Fund has reduced
its forecast for growth in 2020
3.6%
3.5%
3.4%
Source: IMF
April 2019 July 2019 October 2019

4. Expectations for growth in the euro
area next year are modest
Source: European Central Bank
1.8%
1.2%
1.1%
1.4%
2018 2019 2020 2021
1.4%
2022
ECONOMIC GROWTH IN THE EURO AREA

5. Source: European Central Bank
1.8%
1.2%
1.1%
1.4%
2018 2019 2020 2021
1.6%
2022
Inflation remains low in the euro area
INFLATION IN THE EURO AREA

6. Money markets expect that interest
rates will remain low for a long time
Source: European Central Bank
202220192008 2011 2015
-1%
0%
1%
2%
3%
4%
5%
3-month EURIBOR

7. Growth in foreign markets will be
clearly below the level of previous years
2016 2017 2018 2019 2020 2021 2022
Source: European Central Bank, Eesti Pank calculations
Sweden
Russia
Finland
Latvia
Lithuania
Germany
demand from trading partners for imports
3.2%
6.7%
4.1%
1.8% 1.8%
2.5%
2.8%

8. Estonian exporters can feel the cooling of
foreign markets and the loss of competitiveness
assessment of
Estonian companies
for exports in the
coming months
worsening
improving
Source: European Commission
8
assessment of
Estonian companies of
the competitiveness
of exports
2012 2013 2014 2015 2016 2017 2018 2019

9. construction
services
Confidence about the future has fallen
Source: European Commission
9
industry
2017 2018 2019
less
certain
more
certain
outlook
for the
future

10. ECONOMIC GROWTH
not accounting for the planned changes to the second pension pillar
2018 2019 2020 2021
4.8%
3.4%
2.3%
2.0%
The Estonian economy continues
on a decelerating trajectory
Industrial output and exports have weakened
Sources: Statistics Estonia, Eesti Pank
2022
2.2%

11. falling
employment
rising
employment employment
expectations
in services
The demand for labour is very different in
services and in industry
employment
expectations in
industry
Source: European Commission
11
2015 2016 2017 2018 2019

12. The cooling economy and the weaker demand
for hiring will lead unemployment to rise
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Sources: Statistics Estonia, Eesti Pank
2020 2021 20222019201520102007 2018
6.4%
6.2%
5.7%
4.7%
5.4%
SIGNS OF COOLING IN THE LABOUR
MARKET
Data from Töötukassa at the end of
November showed some 3400
vacancies, or about 20% fewer than
a year earlier, and over 33,000
registered unemployed, or 10%
more than a year before
not accounting for the planned changes to the second pension pillar

13. The contribution of short-term workers to
growth in employment has been increasing
0%
1%
2%
3%
2016 2017 2018 2019
Sources: Statistics Estonia, Police and Border Guard Board, Eesti Pank
residents
short-term
workers
CHANGE IN EMPLOYMENT
(first three quarters)

14. Wage growth is slowing
2018 2019 2020 2021
GROWTH IN THE AVERAGE MONTHLY WAGE
7.6% 7.5%
6.3%
5.5%
Sources: Statistics Estonia, Eesti Pank
2022
5.5%
not accounting for the planned changes to the second pension pillar

15. 2018 2019 2020 2021 2022
2.4%
1.7%1.8%
Inflation will be restrained
by cheaper oil and
slower wage growth
Sources: Statistics Estonia, Eesti Pank
3.4%
energy
food
manufactured
goods and
services
2.2%
not accounting for the planned changes to the second pension pillar

16. 2018 2019 2020 2021 2022
Sources: Statistics Estonia, Eesti Pank
2.4%
1.7%1.8%
3.4%
2.2%
taxes
regulated prices
Inflation will also be
reduced by a smaller
impact from taxes
not accounting for the planned changes to the second pension pillar

17. Conclusions from the
economic forecast

18. Interest rates will remain at present or lower
levels until the inflation outlook converges to
close to 2%
The European Central Bank started additional
monthly net asset purchases of 20 billion euros
from 1 November
It is reinvesting the principal payments from
maturing securities
It is keeping lending conditions favourable for
the banks

19. Growth in the Estonian economy is
moving onto a decelerating trajectory
• Growth was faster than expected in the third quarter of this
year because of temporary factors, but the general trend is
towards slower growth
• The labour market remains tight, but it reacts to changes in
economic activity with a lag, and various indicators already
suggest that the labour market will soon become calmer
• Demand for additional labour will decrease and unemployment
will rise but not by enough to remove wage pressures
• The movement of EURIBOR below zero will affect lending
conditions little, as 75% of loan contracts have a zero floor

20. The Estonian economy is doing very
well even as growth in it slows
the output gap
the difference between actual GDP and the level that would not cause wage pressures
2018 2019 2020 2021 2022
2.6%
4.1%
3.6%
2.3%
1.2%
0.7%
Source: Eesti Pank
The largest ever share of society in employment, low unemployment and rapid
wage growth are boosting spending on consumption
2017

21. Tax revenues will again be larger than usual in
the coming years
The general government budget should be returned to structural balance as soon as
possible while revenues are still clearly in surplus
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
2016 2017 2018 2019 2020 2021 2022
Sources: Statistics Estonia, Eesti Pank
ratio to GDP
impact of
the
economic
cycle
structural
position
temporary
measures
nominal fiscal
position
not accounting for the planned changes to the second pension pillar

22. -2%
0%
2%
4%
6%
The introduction of the changes to the second
pension pillar could cause a recession in 2022
Source: Eesti Pank
2019
2021
baseline forecast
scenario
2020 2022
Economic growth if the second pillar changes
consumption of
second pillar
savings:
30%

23. Key indicators for the Eesti Pank
economic forecast
2018 2019* 2020* 2021* 2022*
GDP at current prices (EUR billion) 26.02 27.98 29.54 30.93 32.33
GDP change at constant prices (%) 4.8 3.4 2.3 2.0 2.2
GDP growth per person employed (%) 3.5 2.6 2.0 2.0 2.4
Consumer Price Inflation (%) 3.4 2.4 2.2 1.8 1.7
Unemployment rate (%) 5.4 4.7 5.7 6.2 6.4
Average gross wage (euros) 1309 1408 1497 1579 1665
Average gross monthly wages, change (%) 7.6 7.5 6.3 5.5 5.5
Budget balance (% of GDP)* -0.6 -0.2 -0.2 -0.2 0.0
* forecast. Not accounting for the planned changes to the second pension pillar.
Sources: Statistics Estonia, Eesti Pank