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Estonian economy in 2016

Estonian economic growth will be modest for the following year and it will stay around 1.2% according to Estonian Central Bank prognosis.

In the last years the growth has been driven by consumption and employment growth, but that is clear that labour force employment can’t grow indefinitely and the working age in population is decreasing annually. The productivity growth has been decreasing in comparison to other European countries, but Estonia has several advantages where to increase the growth. We could point out the Estonian state financial status and small debt, decreased private sector liabilities and good lending terms with flexible labour conditions.

Even though our curtail foreign trade partners Finland and Russia have problems in adaptation, ECB has increased its bond purchase to 80 billion € a month and still relatively low oil price keeps influencing the world economy. 

Somewhat disturbing is the confrontation of Russia and Western world, in Ukraine and Syria tension areas. Will the refugees’ inflow to European Union increase its economy or will it finally destruct the Schengen area? The 2016 will probably give us answers to some of the previously raised questions.

The uncertainty in our neighbour’s economy brings both problems and opportunities to Estonian economy.
Integration between Estonia and Finland economies is an ongoing process and in some sectors we are also useful to our Northern neighbour’s. Here we could mention that Rail Baltic project has increased the interest from Finnish side to build Tallinn-Helsinki tunnel.

Difficult times make us think of new solutions and rapid changes in technologies could bring us those. To name some of the areas like artificial intelligence development, driverless cars and also drone technologies, virtual reality, energy saving solutions, nuclear fusion tests in Germany, USA and China. 

We have to keep track of these new developments and Estonia due to its small economy has been quite successful in adopting them. There is also a risk of enjoying our success too much and loose our competitive edge, because the world is transforming in rapid pace. Today Uber is the main source of news of changing people’s commuting habits, but in 4 to 5 years a self-driving car could be the next one.

The change is also happening in the thinking of society as whole. The low oil prices have caused crisis in shale oil stone chemical and energy sector. Once again the other natural sources topic has been raised in Estonia. There are discussions about starting the European biggest phosphorite research. 

I hope that the government will take initiative and govern its wealth resources with firm grip and does it so, the footprint to the nature is the lowest possible. The material research has to be done by the state and as a strategic recourse the mining initiative also has to be done by state. 

We should not be afraid of getting wealthy, success and peoples wellbeing will grant that younger people will not leave Estonia. The wealth enables us to give good education and find sources for funding social guaranties and defence budget.
2016 will be a successful year for Estonia, but for that to be sustainable we have to adapt to changes and be brave in applying them. 

Investment Agency OÜ partner Illar Kaasik