OECD Economic Survey of Estonia 2022 - Presentation

2022 OECD ECONOMIC SURVEY OF ESTONIA 28 June 2022

Strengthening growth in an uncertain environment

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www.oecd.org/economy/estonia-economic-snapshot/

Strong growth is now slowing due to the war in Ukraine Real GDP

Index 2019 Q4 = 100 112

Forecast

108 104 100 96 92

2019

2020

2021

2022

2023

Source: OECD Economic Outlook 111 database and OECD calculations.

2

Labour market is strong but still below pre-pandemic performance Employment rate

Unemployment rate

% of working-age population 15-64

%

80

21

EST OECD

75

FIN LVA

LTU

FIN OECD

LTU

18 15

70

12

65

9

6

60 55

EST LVA

3 2008

2011

2014

2017

2020

0

2008

2011

2014

2017

2020

Source: OECD Labour Market Statistics.

3

Inflation is accelerating sharply Headline inflation Y-o-y % changes 20

Core inflation Y-o-y % changes 20.0

EST

Baltics

EU27

15

15.0

10

10.0

5

5.0

0

0.0

-5

2006

2009

2012

2015

2018

2021

-5.0

2006

2009

EST

2012

Baltics

2015

EU27

2018

2021

Source: OECD.

4

Wages are now growing less than inflation, weighing on purchasing power Nominal wage growth and inflation Year-on-year % change 21

Wages

18

Headline inflation

15 12 9 6 3 0 -3

2019

2020

2021

2022

Source: OECD.

5

Estonia is hosting many Ukrainian refugees relative to its population Refugees from Ukraine 2022 % of population 4,0 3,5 3,0 2,5 2,0 1,5 1,0

0,5 0,0

TUR

ITA

HUN

ESP

ROU

DEU

BGR

SVK

EST

POL

MDA

CZE

Note: the data is updated to June 9, 2022.

Source: UN Ukraine refugee situation, Situation Ukraine Refugee Situation (unhcr.org) .

6

Public debt grew but remains very low General government debt % of GDP

140 120

2021Q4

2019

100

80 60 40 20 0 EST

LTU

LVA

FIN

SVN

OECD

Note: Based on the general government debt Maastricht criterion, with the exception of the OECD average.

Source: OECD Economic Outlook database.

7

Policies for a resilient and balanced recovery

8

Vocational education and training should be strengthened Participation of 15-24 year-olds in vocational education and training %

2018

% 40

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

0

CRI COL LTU ISL NZL EST DNK MEX SWE GRC AUS CHL KOR ISR ESP PRT LVA OECD NOR GBR HUN FRA POL FIN DEU ITA LUX SVK NLD CHE BEL TUR AUT SVN

40

Source: OECD Improving the Provision of Active Labour Market Policies in Estonia (2021).

9

Active labour market policy should focus on tackling skills obstacles Share of working-age people with weak attachment to the labour market in Estonia receiving ALMPs by their labour market obstacles 2017-2019 %

Labour market services

Training

Employment incentives

Supported employment/rehab, direct job creation & start-up incentives

%

40

40

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

Health

Geographic distance

Motivation

Skills and qualification

0

Source: OECD Improving the Provision of Active Labour Market Policies in Estonia (2021).

10

Tax revenues are tilted toward indirect taxation Tax revenue decomposition 2020 Personal income tax Social security contributions Taxes on goods and services

Corporate income tax Property taxes Other

% of total taxation 100 80 60 40

OECD

NORDICS

ISL

DNK

FIN

SWE

NOR

BALTICS

LVA

LTU

0

EST

20

Source: OECD Tax Revenue database.

11

There is room to increase taxation on capital income Overall tax rate on dividends % 60

(personal plus corporate income taxes) 2022

% 60 50

40

40

30

30

20

20

10

10

0

0

EST LVA HUN GRC SVK LTU POL CHE ISL CZE TUR NZL CHL CRI LUX SVN COL OECD MEX FIN ITA JPN SWE ESP AUT NLD AUS USA BEL DEU ISR NOR PRT GBR FRA DNK CAN IRL

50

Source: OECD Tax Revenue database Table II4.

12

Poverty remains a challenge Poverty rate % 30

2019 or latest available

25 20 15 10

0

ISL CZE SVK DNK FIN SVN IRL NOR FRA HUN AUT NLD BEL DEU POL CHE SWE PRT GRC LUX OECD CAN GBR NZL AUS ITA ESP JPN TUR EST LTU KOR LVA MEX ISR CHL USA CRI

5

Note: Data refer to the total population and are based on equivalised household disposable income, i.e. income after taxes and transfers adjusted for household size. The poverty threshold is set at 60% of median disposable income in each country. The incomebased poverty rates exclude lump-sum payments, which are frequent in the retirement schemes of some countries (e.g. Australia, Switzerland). CEEC is the average of Hungary and the Czech and Slovak Republics.

Source: OECD Income Distribution Database (IDD), http://stats.oecd.org/Index.aspx?DataSetCode=IDD, and Statistics Estonia.

13

Transfers could be better targeted Share of public cash transfers received by working-age individuals in low and high-income groups % 50

2020 or latest available Poorest quintile

Richest quintile

% 50 40

30

30

20

20

10

10

0

0

TUR ITA CRI GRC ESP LUX PRT CHL LVA POL HUN AUT JPN EST LTU USA SVK KOR ISR FRA OECD BEL SVN MEX IRL NOR DEU ISL CZE CAN CHE SWE GBR DNK NLD AUS FIN NZL

40

Source: Calculations based on OECD Income Distribution Database and OECD Tax-Benefit Models, via http://www.oecd.org/els/soc/benefits-and-wages.htm 14

The minimum wage could be increased to reduce in-work poverty Minimum relative to average wages of full-time workers Ratio 70

2020

Ratio 70 60

50

50

40

40

30

30

20

20

10

10

0

0

USA HUN LVA CZE IRL EST JPN NLD TUR GRC ISR BEL LTU MEX SVK OECD30 CAN DEU LUX POL ESP PRT AUS GBR CRI SVN FRA CHL KOR NZL COL

60

Source: OECD Employment and Labour Market Statistics, Statistics Estonia.

15

The gender pay gap remains high Difference between male and female median wages divided by the male median wage 2020

% 35 30 25 20

15 10

0

CRI BEL COL NZL NOR DNK IRL SWE ITA SVN CHL ESP POL GRC MEX HUN TUR SVK OECD LTU PRT FRA AUS GBR CZE NLD ISL AUT CHE DEU CAN FIN EST USA LVA JPN ISR KOR

5

Note: The gender wage gap is defined as the difference between male and female median wages divided by the male median wage.

Source: OECD Employment and Labour Market Statistics.

16

Addressing climate change

17

Estonia is aiming for net zero GHG emissions by 2050 Total greenhouse gases including LULUCF GHG thousands of tonnes of CO2 equivalent 40000

40000

35000

35000

30000

30000

25000

25000

20000

20000

-70% by 2030

15000

15000 10000

5000 0 1990

10000

2020 provisional data

1995

2000

2005

2010

2015

2020

5000 2025

2030

2035

2040

2045

2050

0

Note: Latest data is for 2019. Data for 2020 is preliminary and estimates LULUCF emissions based on 2019 data. LULUCF stands for land use, land use change and forestry. The targets represent a 70% GHG emission reduction by 2030 relative to 1990 (Paris Agreement) and a climate neutrality goal by 2050 (Strategy Estonia 2035), shown here as zero emissions in 2050.

Source: OECD Environment database on greenhouse gas emissions.

18

The carbon intensity of the economy is high but falling Total greenhouse gases excluding LULUCF per unit of GDP kg of CO2 equivalent per 1000 USD 0,70

2019

2005

0,60 0,50 0,40 0,30 0,20

0,00

CHE SWE IRL DNK FRA NOR GBR CRI LUX AUT ESP ITA PRT NLD DEU LVA HUN FIN BEL LTU TUR SVK SVN JPN ISR ISL CHL OECD GRC CZE MEX POL EST USA KOR NZL CAN AUS

0,10

Note: LULUCF stands for land use, land use change, and forestry.

Source: OECD Environment database on greenhouse gas emissions.

19

Carbon pricing should be higher and more comprehensive Share of emissions priced above EUR 60 per tonne of CO2 2018 80 70

60 50 40 30 20 10 USA CHL EST KOR CZE COL JPN NZL AUS CAN DEU POL TUR SVK SWE LVA BEL HUN FIN AUT OECD PRT GBR GRC MEX ESP ISR FRA NLD IRL ITA DNK LTU ISL SVN NOR LUX CHE

0

Note: this includes emissions from the combustion of biomass.

Source: OECD Effective Carbon Rates (ECR) database.

20

Oil shale accounts for a large share of primary energy supply Total primary energy supply 2020 Oil Nuclear Wind, solar and geothermal

Natural gas Biofuels and waste

Coal, peat and oil shale Hydro

ISL SWE FIN NOR FRA CHE CRI LVA DNK NZL SVN SVK LTU AUT HUN BEL ESP EST CZE PRT CHL CAN GBR DEU ITA LUX USA KOR GRC TUR IRL JPN POL MEX NLD AUS ISR

% 110 100 90 80 70 60 50 40 30 20 10 0 -10

% 110 100 90 80 70 60 50 40 30 20 10 0 -10

Source: IEA World Energy Balances database.

21

Oil shale production is concentrated in Ida-Viru, where poverty is the highest Geographical decomposition of poverty 2020

Ida-Viru region

Source: Statistics Estonia, Estonian Social Survey (EU SILC) 2021.

22

Labour market policies could better support workers during the transition Spending on active and passive labour market policies 2019 % of GDP 5.0

Active measures (10-70)

4.5

% of GDP 5.0

Passive measures (80-90)

4.5

NZL

DNK

AUS

FRA

ESP

FIN

BEL

AUT

NLD

ITA

SWE

DEU

OECD

LUX

PRT

CHE

0.0

EST

0.0

USA

0.5 IRL

0.5 KOR

1.0

HUN

1.0

CAN

1.5

NOR

1.5

LTU

2.0

ISR

2.0

SVN

2.5

LVA

2.5

SVK

3.0

CHL

3.0

POL

3.5

CZE

3.5

JPN

4.0

MEX

4.0

Source: OECD Labour Market Programmes database.

23

There is scope to expand and diversify renewable energy supply Renewable energy production in total energy supply 2020 or latest available % 100 90

Biofuels and waste

Wind, solar

Hydro

Geothermal

% 100 90

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

0

KOR ISR JPN AUS USA MEX NLD BEL POL LUX HUN FRA CZE SVK IRL GBR GRC TUR CAN ESP DEU SVN ITA LTU COL CHE PRT CHL AUT FIN EST NZL DNK LVA SWE CRI NOR ISL

80

Note: Bioenergy includes solid biofuels, renewable waste, liquid biofuels and biogases. Hydro includes hydropower (excluding pumped storage), and tidal, wave and ocean energy. Data is for 2020 or latest year available.

Source: IEA World Energy Balances database.

24

Higher R&D investment could support the green transition Research and development spending by government and business enterprise % of GDP

2020 or latest available

% of GDP

5

5 Government

Business enterprise 4

3

3

2

2

1

1

0

0

MEX CHL COL LVA SVK LTU TUR LUX POL IRL CAN PRT GRC ESP NZL AUS ITA EST GBR HUN NOR CZE EU27 NLD ISL FRA SVN DNK CHE FIN OECD AUT DEU SWE BEL JPN USA KOR ISR

4

Source: OECD MSTI database.

25

Low-carbon transport alternatives to cars should be further promoted Private car density rates across countries 2020 or latest available Passenger cars/ 1000 inhabitants 800

Passenger cars/ 1000 inhabitants 800 700

600

600

500

500

400

400

300

300

200

200

100

100

0

TUR CHL MEX ISR KOR LVA USA HUN SVK IRL DNK PRT SWE GBR JPN NLD OECD BEL GRC ESP NOR CHE FRA CZE SVN LTU AUT AUS DEU EST CAN POL NZL FIN ITA LUX ISL

700

0

Source: UNFCCC (2020), OECD ITF database.

26

Energy efficiency in buildings could be improved Energy consumption of households for space heating 2019 koe/m²

koe/m²

16

16

14

14

12

12

10

10

8

8

6

6

4

4

2

2

0

PRT ESP GRC NLD SWE IRL GBR EU ITA SVK CHE FRA DEU LTU DNK FIN SVN POL AUT LUX EST CZE HUN LVA

0

Note: Latest data is for 2019. The comparison shows energy consumption by households for space heating.

Source: ODYSSEE-MURE. 27

For more information

https://www.oecd.org/economy/estonia-economic-snapshot/

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