Swedbank Flash comment: Wage growth remains rapid and broad-based

SwedbankIn the third quarter, the average full-time gross wage amounted to EUR 1291, up by 7.5%, in a year. Median wage reached EUR 1000, +10.0%, over the year, according to the Tax Board.

The average gross wage increased in all sectors, except for administrative services. A rapid growth in the average wage is supported by a shortage of labour and a hike in the minimum wage. The third quarter’s wage growth was also facilitated by a change in the tax system which motivated people to smooth their income, including holiday pay, across different months. Swedbank expects the average gross wage to rise by 6.6% in 2018 and by 6.0% in 2019.

The average real net wage grew by a tenth in the first 9 months, year-on-year. That is of a similar magnitude seen during the peak of the previous cycle. Real net wages were pushed up by a substantial hike in the non-taxable income. Due to a strong wage growth and higher social transfers, families’ assessment of their financial situation is the highest on record and well above the level of the previous economic boom (data by the Estonian Institute of Economic Research). According to the Estonian Institute of Economic Research, 53% of families manage to save.

Rapidly growing real incomes have had a minor impact on consumption. Retail sales volumes have grown by only 0.9%, over the year, in the first 9 months of 2018. This is probably a result of higher inflation and savings, but could also reflect households’ cautiousness related to spending one’s expected additional income from higher non-taxable threshold (from EUR 180 per month for all employees in 2017 to EUR 500 per month for the majority of wage-earners in 2018). The deposits of Estonian households grew quite rapidly, by 9.5%, over the year, in October.

While the deflated turnover of everyday consumer goods grows modestly, households’ purchases of cars and real estate are more pronounced. The stock of car leases was 21% larger than a year ago in October. The total value of the purchase-sale transactions of apartments exceeded last year’s figure by 9.7% during the first 10 months of 2018 (although the total number of transactions was 2.3% smaller than in 2017).

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