LFS unemployment rate in Estonia falls to 5.6% in Q1

The LFS unemployment rate fell to 5.6% in Q1, down from 6.6% in Q4 2016 and 6.5% in Q1 2016, according to the data published by the stat office on Monday morning. The labor market improved significantly as the number of unemployed people dropped by 11.9% y/y to 38,400 while the number of employed increased by 2.7% y/y to 646,800. At the same time, the labor force expanded by 1.7% y/y as a result of the government’s policy to increase labor market participation. The number of inactive people went down by 5.7% y/y, hence, it seems the employment in Q1 increased through both the decline of unemployment and new people entering the labor market. The labor force participation rate and the employment rate increased to 70.2% and 66.3%, respectively, which is the highest values for both indicators for Q1 over the last several years and indicates further that labor market improved significantly in the first quarter of the year.

All in all, the labor market performed strongly in Q1 and so far it seems that expectations about a higher unemployment rate as a result of higher participation are not materializing. The EC expects the average unemployment rate to increase to 7.7% in 2017 and 8.6% in 2018, however, labor force participation needs to speed up significantly over the coming months for this to happen. The strong labor market performance should boost private consumption, despite the recently observed higher propensity for saving among the population, and we could expect GDP growth this year to be higher than the currently anticipated 2.3-2.5%.

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