Estonia’s central bank said on Wednesday it expects the economy to shrink 10% this year, a steeper decline than forecast in March, due mostly to weaker demand for the country’s exports during the coronavirus pandemic.
The unemployment rate would top 13% by the end of the year compared with an average of 4.4% through 2019, as the labour-intensive service sector took the biggest hit from the crisis, it said in a statement.
“Countries are removing restrictions and exiting the crisis at a different pace, and the growth potential of the Estonian economy will continue to depend on that,” the central bank added.
“As the arrival of a second wave of the virus is not ruled out, there is a risk that economic development will be worse than forecast.”
In March the bank said it expected the economy to shrink more than 6%, while in April the finance ministry forecast an 8% fall in GDP.
“The effects of the crisis are concentrated on the labour market. In the financial crisis that began in 2008 the industrial and construction sectors were hit hardest, but this time its the labour-intensive services sector,” it said.
The average salary would shrink for the first time in 10 years, it said. Employees had seen an average annual salary growth of more than 5% each year since 2011, according to the bank’s figures.