In the last three years the European economy has been shaken by three successive shocks, partly linked to each other but nevertheless separate. First, the coronavirus pandemic, second, post-pandemic failures in the supply chains of various products, and third, the sharp increase in energy prices caused by Russian aggression. Considered separately, for each of these shocks one might think that their effect on price increases could be temporary, even though energy prices have apparently reached a fairly permanently higher plateau in terms of level. In such a situation, the Central Bank has the power to ensure that factors that initially have a temporary effect, but which then accelerate price increases one after another, do not create a situation in which both companies and People already base their decisions on expectations that price increases will continue to be rapid in the future. This danger has now clearly diminished.
Just like in Estonia, the purchasing power of people in the euro area is improving, as wages grow faster than prices on average. This will support the economic recovery.
The latest forecasts from the European Central Bank point to slightly slower economic growth this year and next than previously expected. The conditions exist for a gradual recovery of the euro area economy from the current stagnation, but neither the most recent data nor the forecasts inspire excessive optimism. However, it can be assumed that the demand for euro area exports in other countries will gradually improve, especially since the current economic situation, for example, in the United States and China is relatively better. Furthermore, the purchasing power of people in the euro area is improving, as in Estonia, because wages are growing faster than prices on average. Surveys on business and consumer confidence continue to indicate rather cautious opinions, but even from these indices we can already read a certain reduction in pessimism.
In the long term, the challenge for the euro area is precisely to improve the competitiveness and productivity of industry, since the increase in energy costs to a permanently higher level represents a problem for European companies from the point of view of price competition. In Estonia we feel this even more acutely, as in recent years the level of costs for Estonian entrepreneurs has increased even more sharply than their Western European competitors.
Finally, another positive piece of information for Estonian exporters, for whom the weakening of Scandinavian currencies was also a problem. This trend appears to have reversed, at least for now, and both the Swedish and Norwegian krone have strengthened in recent weeks.
2023-12-15 16:21:08
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