Monetary policy in the euro area is expected to remain very accommodative. Further fiscal expansion in Estonia should be avoided to reduce risks of overheating, but there is fiscal space to finance productivity‑enhancing investments, for example in infrastructure and skills. House prices are growing in line with incomes, and macroprudential tools have improved resilience. Subsidiaries of Nordic banks provide the bulk of banking services in the country. Several of them are being linked to on‑going money‑laundering investigations, calling for a strengthened legal framework with higher fines.
Export growth is still fairly solid, as rising unit labour costs are compensated by gains in non‑price competitiveness and a compression of margins. Falling price competitiveness contributes to reductions in traditional manufacturing employment, with social costs that can be significant and geographically concentrated. Ensuring good access to unemployment insurance and activation policies can help to alleviate the social impact and help jobseekers return to work more rapidly. Structural policies to boost productivity and to encourage the adoption of digital technologies would help to sustain income growth.
Employment growth is strong and immigration helps to alleviate labour shortages. The work ability reform is bringing individuals with a partial ability to work out of disability insurance and into the labour force. However, some of these individuals, and workers displaced from traditional manufacturing, may struggle to find new employment, calling for renewed efforts to re-skill and up-skill. Further improving access to childcare, along with a more equal sharing of parental leave between parents, could give an additional boost to female employment and reduce the second-highest gender wage gap in the OECD.
