average electricity price before vat paid by estonian companies in the first half of this year was 16 cents per kilowatt - hour, which is a little below the european union average, but above the price of 8 cents in finland or 11 cents in sweden. european union member states have also passed support measures and industrial policy measures that could create inequalities in the single market of the union. several countries will continue to pay energy subsidies this winter, though in much smaller amounts than before. policies that can develop the green and digital economies will depend on the budgetary capacity of different countries and the fiscal choices that they make, and countries like france, germany and italy have recently proposed new largescale initiatives. the good growth in the turnover of estonian companies was last year encouraged by high inflation elsewhere in the world, but that picture has now changed. growth has slowed in estonia's main export markets and purchasing power has declined, making it very difficult for companies here to pass higher input prices on to purchasers. companies trying to cope with their costs growing relatively fast will have to continue to find efficiencies in production and business processes, as productivity indicators show there is still a lot of room for improvement in this. 4 / 6 bis - central bankers'speeches labour productivity in estonia, shown as real gdp per employee, had been approaching the average level in the european union but fell by almost 5 % last year because employment increased just as gdp contracted, and estonia fell back to 18 % below the european union average. there has been no improvement this year either, which means that the target set in the government's estonia 2035 strategy of productivity surpassing the european union average level has actually been made more distant. some of the decline in productivity is sure to prove temporary, as there is a lag in the reaction of the labour market to events in the economy, and employment has not declined to the same extent that output volumes have. the gap from estonia to wealthier countries is, however, still clearly evident. the branches of the economy that suffered because their earlier supply chains were wiped out by the outbreak of war will have to change their business models. companies that are in difficulty because of the gloom in the economies of their main export markets will have to try to find new markets. we will be releasing the latest eesti pank economic forecast in a couple of weeks. the final version is still being polished, but the figures recently released for gdp in the third quarter indicate that the

/ 6 bis - central bankers'speeches this cannot be viewed in isolation from what is happening in the rest of the world, as slower growth will be a problem in almost all advanced economies both this year and next. growth has slowed particularly sharply in the european union, which is the main theatre of activity for estonian companies. companies and households in europe are particularly exposed to the consequences of the war between ukraine and russia and the energy crisis, because europe is a net importer of energy and was highly dependent on cheap gas from russia but now has to cope with much higher energy costs. the opportunities for growth in estonia, which is an open economy in which exports play a large role, depend directly on demand in the markets for our exports. there are many other reasons as well though why the estonian economy is currently performing worse than those in other parts of europe. the estonian economy had recovered rapidly by the start of 2022. companies had managed to accumulate financial buffers after the sudden stop of the pandemic, and households had improved their standard of living, but this equally meant that there was a higher peak from which to descend. the overheating caused by higher consumption gave a further boost to rising inflation. russia's military aggression and its consequences also affected the estonian economy more than it did others on average. rising prices for energy passed through more quickly and to a larger extent to other prices because many electricity consumers in estonia used exchange - based price packages, and estonian households spend more on energy and fuel than those in other countries, while the estonian economy is also more energy - intensive than the average in europe. the price level in estonia was pushed even higher by the interruptions to supply chains, which particularly affected sectors that had earlier used cheap raw materials from russia. being the immediate neighbour of an aggressive country also poses risks to business in estonia that are reflected in the cost of capital and in, for example, the number of foreign tourists. the sharp rise in interest rates has affected borrowers in estonia more immediately, as the majority of loan contracts here have floating interest rates. and to cap it all, the position of estonia is made more difficult by our main export markets performing more poorly than the average, as the nordic economies are under pressure from weak demand at home and abroad and from rapidly rising borrowing costs and a steep drop in house building. just because there has been a setback in the economy, does not mean that a longer period of stagnation will necessarily follow. the economy is