Flash comment: Estonia

Economic commentary by Economic Research Department Nov. 14, 2012

Unemployment rate falls to 9.7% in 3Q

Labour market indicators
20% 15% 10% 5% 0% 2008 -5% -10% -15% Unemployment rate Employment, annual grow th Participation rate (rs) 62% 2009 2010 2011 2012 66% 70%

68%

According to the Labour Force Survey data published by Statistics Estonia, the unemployment rate fell to 9.7% in the third quarter from 10.2% in the second quarter. Annual growth of employment slowed to 1.1%, while the participation rate reached a new high of 68.6%. Unemployment fell in all age groups, but the most among the youngest (<24 year-olds) and the oldest (>50 year-olds). In those age groups the non-activity declined the most as well; for the latter this can be explained by a gradual rise in the pension age. Although the long-term unemployment declined for the second quarter in a row, its share in the total unemployment has remained above 50% since the beginning of 2011. Employment dynamics reflect the structure of economic growth which has lately been strongly domestic-demand oriented as compared to a year ago employment grew by 27% in real estate related activities, 25% in ICT and 3% in domestic trade. In addition, the contribution from public sector to overall employment growth was very high employment was up by 13% in education, 11% in health care and 24% in administrative activities, i.e. in sectors with a strong public sector involvement. Manufacturing which has contributed negatively to the economic growth due to weak external demand, saw employment fall for the second quarter in a row. As the GDP growth accelerated in the third quarter (to 3.4%) productivity per employee improved again after stalling for two quarters. Productivity increased close to all-time highest level last seen in the third quarter of 2007.

64%

60%

Unemployment by duration
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2007 70% 60% 50% 40% 30% 20% 10% 2008 2009 2010 2011 more than 12 months less than 12 months share of long-term unemployment (rs)

Outlook
As employment has almost reached the levels seen during boom years (currently ca 5% lower), further gains in coming quarters are likely to be smaller. On one hand, the labour demand will be suppressed by continuously weak external conditions which hurt the exporting sector; on the other hand, the continuous structural problems in the labour market will be more visible and lack of qualified labour is an increasing bottleneck.

Employment expectations, points

30 20 10 0 2010 -10 -20 -30 -40 manufacturing construction retail services

2011

2012

Kristjan Tamla Acting Chief Economist +372 888 7952 kristjan.tamla@swedbank.ee

Swedbank Economic Research Department SE-105 34 Stockholm, Sweden ek.sekr@swedbank.com www.swedbank.com Legally responsible publisher Cecilia Hermansson, +46 8 5859 7720

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