Page 28 - CE Outlook Regions 2022

Employment has increased primarily in ICT and healthcare, but when
compared with pre-crisis levels, most of the economic activities are at
lower employment levels. Rapid economic growth and high
unemployment lead to strong productivity growths, but with negative
consequences for some sectors and persons. Unemployment is unable
to return to the pre-crisis levels without foreign tourism, which will take
time to recover.

2.2.2 External environment

Estonia's current account balance ran into a deficit at 4.7% of GDP in
1Q21 after several years of surpluses (average 1.1% of GDP over the
last five years). This was largely because of the setting up of a software
subsidiary of the German carmaker Volkswagen. The current account
will correct over the next few years, leading to a small deficit.
Major risks or hopes? Like dependence on agriculture, oil, car market

2.2.3 Inflation and monetary policy

Inflation will be on the higher end throughout 2022 but should remain
slightly below 4% in 2022. The sharp increase in consumer prices is
mostly caused by foreign factors and this will eat up more than half of
the nominal wage increases in 2021 and 2022. In relation to fast
recovery of the global economy, more than half of the increase in
consumer prices comes from mainly imported energy prices. The
contribution of core inflation will increase as well, but about half of this
is caused by imported industrial goods.

Fitch forecasts that inflation will remain elevated given the increase in
gas prices by 50% in September, robust wage growth (7.3%
year-on-year in 2Q21) and increasing public spending. Under its
baseline scenario, inflation will average 3.4% in 2021 and 3.8% in
2022.

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