TALLINN - The International Monetary Fund has said in its latest report on Estonia that there were signs indicating the country's economy might be overheating. It said the signs were particularly lucid in data on employment and output.
"With output estimated to be close to potential, sharp wage-growth in the first half of 2005, combined with signs of labor shortages in the construction sector and an overall decline in unemployment, could signal nascent overheating," the bank wrote.
There are also signs of overheating on the property market, which has seen robust demand for home loans and a shortage of labor in the construction sector, the report said.
The bank said that slowing growth in the housing market could be achieved by further reducing the deductibility of interest on home loans and maintaining the current limits on Kredex, a national credit guarantee fund for new home owners.
The country should also adhere to a more conservative fiscal policy, run a substantial surplus 's which it currently does 's and reduce demand pressures in an overheated system, the IMF recommended.
The IMF staff report on Estonia for 2005 is based on the findings of a mission that visited the country this summer.