Swedbank flash comment Estonia: Rapid wage growth continues

Swedbank• Wage growth remained rapid in the 3rd quarter at 7%, over the year.
• We expect average gross wage to slow to around 5% in 2017.

In the 3rd quarter of 2016, the average monthly gross wage was 1,119 euros in Estonia, up by 7.1% over the year. Net average wage grew also rapidly, by 6.8% in real terms. The growth of gross wages will probably remain around 7% in the remaining months of the year as labour market remains tight. There were about 9,500 job vacancies in Estonia in the 2nd quarter of 2016. The number of job vacancies exceeded 9,000 last time in 2008.

The rapid growth in the average wage is supported by a lack of suitable labour, a 10% increase in the minimum wage, a political agreement to raise the wages of teachers and healthcare workers, and strong domestic consumption that lifts the sales of enterprises selling their products and services in the domestic market. The average gross wage increased in all sectors, except mining, which has been hurt by low energy prices.

The growth of wages in real terms will slow dramatically in 2017, as nominal growth of wages will be somewhat slower and prices will rise. This, in turn, will limit households’ consumption. The substantially slower growth of wage-earners’ purchasing power will be smoothed by a higher employment rate and an increase in social transfers to pensioners and families.

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