Estonia flag Estonia: Economic outline

Economic Outline

Economic Indicators

After its recovery from the crisis, Estonian growth was affected by an unfavorable regional situation (European sanctions against Russia and the following counter-sanctions), but it grew at a fast pace in recent years until the breakout of the COVID-19 pandemic. After returning to growth in 2021, the country recorded two consecutive years of recession in 2022 (-0.5%) and 2023 (-2.5%). The decline became widespread, affecting not only investment but also private consumption, with exports being particularly impacted as weak external demand and depreciations of major trading partners' currencies contributed to the downturn. Early signs suggest a sluggish beginning to 2024. With higher VAT and excise taxes in place, coupled with persistent inflation and elevated borrowing costs, consumers anticipate a deterioration in their financial situations, resulting in low domestic demand in the first half of the year. Alongside subdued external demand from key trading partners, this leads to a projected real GDP growth of 2.4% in 2024 (IMF, only 0.6% as per the EU Commission). Growth is anticipated to accelerate in 2025, driven by improving external conditions, better financing terms, and increasing consumption (to 2.7%).

Estonia became a member of the European Union on May 1, 2004, and was the first former Soviet country to join the OECD in May 2010. This Baltic republic has managed to move from a state-run and centralized economy to a dynamic market economy, liberalized by a succession of governments observing strict budgetary orthodoxy and modernizing the country. The country has stood out, mainly thanks to its IT sector (the invention of Skype, mobile payment systems, internet voting, multifunctional electronic identity cards, and initiatives in the sphere of cybersecurity), as well as its performances in the green energy sector. Furthermore, Estonia enjoys relative energy independence through the exploitation of shale oil, of which the country is one of the world's largest producers and which covers a large part of its electricity needs. In general, the country has stable public finances; in 2023, the general government fiscal deficit was estimated at 2.5% of GDP by the IMF, with a similar outlook over the forecast horizon (2.3% this year and 2.3% in 2025). As a result of widening fiscal deficits and weaker growth, the general government debt-to-GDP ratio increased to 21.6% in 2023, from 18.5% one year earlier. Albeit low, it is expected to increase to 25.9% by 2025 (IMF). In 2023, Estonia saw a 10% increase in HICP inflation, a decrease compared to the first half of the year, despite substantial drops in global energy prices and a moderation in food and industrial goods inflation. The implementation of higher VAT rates starting January 1, 2024, is anticipated to sustain elevated prices; however, inflation is forecasted to gradually decrease in alignment with global patterns, averaging 3.8% in 2024 and 3.2% in 2025 (IMF).

In recent years, the Estonian labor market has been characterized by labor shortages and consequently rising nominal wages. While wages experienced significant growth in 2023, they have not completely offset the decline in purchasing power resulting from high inflation in recent years. Throughout the year, the unemployment rate remained low (6.7%), with an increase in employment noted during the second half. The IMF expects a rise to 7.1% in 2024. In 2022, the Estonian real GDP per capita (PPP) was estimated at USD 46,697 by the World Bank, still 14% below the EU average. According to the latest data published by Eurostat, about 25% of the population is at risk of poverty.

Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 37.9540.7643.4945.4847.70
GDP (Constant Prices, Annual % Change) -0.5-3.0-
GDP per Capita (USD) 28,13629,83931,85533,34735,016
General Government Balance (in % of GDP) -1.2-1.9-2.2-2.7-2.7
General Government Gross Debt (in % of GDP) 18.520.723.025.527.6
Inflation Rate (%)
Unemployment Rate (% of the Labour Force)
Current Account (billions USD) -1.23-0.68-1.48-1.23-1.08
Current Account (in % of GDP) -3.2-1.7-3.4-2.7-2.3

Source: IMF – World Economic Outlook Database, 2016

Note: (e) Estimated Data

Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 GBP

Source: World Bank, 2015


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Latest Update: June 2024