Flash comment: Estonia

Economic commentary by Economic Research Department Feb.22, 2013

Labour costs grew faster than productivity in 2012
Gross wage, YoY growth
25% 20% 15% 10% 5% 0% -5% -10% Nominal w age Real w age 2006 2007 2008 2009 2010 2011 2012

According to the data published by Statistics Estonia, the monthly average wages grew 5.9% annually in the fourth quarter of 2012, reaching 916 euros. Real wages, which have shown a positive growth for six quarters in a row, accelerated somewhat from 1.9% in the third quarter to 2.1% in the fourth. In the last quarter of 2012, average gross wages grew the most in construction (10%) and in energy supply (11%), the least in finance and administrative and support services (both below 3%). In 2012, the monthly wages in construction and entertainment and recreation activities grew the most (more than 10%), whereas in transportation sector growth of wages grew less than a percentage. In transportation, financial sector and in education, real wages even decreased. Wages differed notably through regions: average wage in Tallinn was 15% higher than Estonian average, while in some regions the average wage barely reached to three-quarters of the Estonian average. Together with the growth of wages and employment, households’ consumption ability has raised. As the labour cost per employee grew faster than productivity, the average labour unit cost increased, which contributed to the increased costs of producing one unit of value added.

Gross wages by activities 4Q, YoY growth
0% Energy supply Construction Prof essional act. Manuf acturing Mining Water supply Entertainment Public admin. ICT Other Av erage Real estate Health Accommodation Agriculture/f orestry Education Domestic trade Transportation Administrativ e act. Finance 2% 4% 6% 8% 10% 12%

Outlook
Looking forward, we expect employment growth to decelerate this year. Should the economic activity accelerate in the second half of 2013, together with decreasing supply of qualified labour, it may cause wage pressures. Nominal wage growth should stay in the same range as it was in 2012, however real wage growth is expected to accelerate as a result of decelerating CPI growth.

Tõnu Mertsina Chief Economist +372 888 7589 tonu.mertsina@swedbank.ee

Swedbank Economic Research Department SE-105 34 Stockholm, Sweden ek.sekr@swedbank.com www.swedbank.com Legally responsible publisher Magnus Alvesson +46 8 5859 3341

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