OREANDA-NEWS.  September 04, 2013. Governor of Eesti Pank Ardo Hansson made a speech to the Tartu autumn forum for teachers, in which he said that in the long term wage growth based on productivity will require clever and educated workers.

“The best chances for a people who are small in number lie in higher value-added and knowledge-intensive sectors of the economy. This means that the greatest challenge for Estonia in the long term is investment in human capital, as other forms of capital can easily be imported from elsewhere”, he said.

The speech stressed the importance of education, giving the example from employment statistics that unemployment was significantly lower among people with higher education.

Since the economic crisis, the Estonian economy has set a solid base and has become less vulnerable. Mr Hansson noted that the long term risks for the economy are wage growth that is faster than productivity growth, continuing uncertainty about external demand and rapid rises in real estate prices.

“Structural unemployment and labour shortages, partly due to emigration, could cause excessive wage growth pressures and an acceleration of inflation, and in this way damage export competitiveness. This would then lead to a reduction in jobs”, he said.

As a whole the euro area is strong and competitive, he explained. “The efforts made by European countries during the crisis period to get their finances in order are showing through ever more clearly in improving competitiveness and sustainable growth. Imbalances are being reduced even within the euro area.”

Hansson believes that in the context of low inflation the euro area is moving steadily towards moderate positive growth, though there are still risks. Such an environment creates conditions in which Estonia can grow relatively quickly. “Growing stably and faster than the euro area would be better than overly fast short-term growth built on borrowing, which could lead to new imbalances and eventually to another serious economic setback.”