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Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

After its recovery from the crisis, Estonian growth was affected by an unfavourable regional situation (European sanctions against Russia and the following counter-sanctions), but it grew at a fast pace in recent years (+5% in 2019). Nevertheless, the COVID-19 pandemic and the crisis that followed had a severe impact on the country’s economy, with GDP dropping by 3% in 2020 (a relatively moderate contraction compared to other EU countries). In 2021, Estonia’s economy rebounded, with an estimated GDP growth of 8.5%, driven by private demand and government stimulus. Economic activity is forecast to moderate to growth rates of 4.2% in 2022 and 3.7% in 2023, with positive contributions in particular from net exports and household consumption (IMF).

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 centralised economy to a dynamic market economy, liberalised by a succession of governments observing strict budgetary orthodoxy and modernising 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; nevertheless, the general government deficit was estimated at -4% of GDP in 2021 (after peaking one year earlier). The deficit is projected to decrease to 2.9% of GDP in 2022 and 2% in 2023, as higher revenues counterbalance higher public wages, healthcare and additional investments. Although it bounced to 20% in 2021 from a pre-pandemic level of 8.6%, the Estonian debt-to-GDP ratio is still the lowest in the EU. However, it is projected to follow an upward trend over the forecast horizon (at 21.4% and 22.4% this year and the next, respectively - IMF). The global energy price hikes and supply bottlenecks contributed to a rise in manufacturing, transport and delivery costs, resulting in an inflation rate of 3.8% in 2021. The rate is expected to further increase to 4.9% in 2022 before easing to 2.2% in 2023.

In recent years, the Estonian labour market has been characterized by labour shortages and consequently rising nominal wages. Unemployment stood at 6.55 in 2021 (from a level of 4.4% before the sanitary crisis), but is forecast to gradually decline, reaching 6% this year and 5.4% in 2023. According to the latest data published by Eurostat, 22.8% of the population is at risk of poverty. In 2021, the real GDP per capita (PPP) was estimated at USD 39,729 by the IMF.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 31.0530.6336.0439.5442.60
GDP (Constant Prices, Annual % Change) 4.1-3.08.54.23.7
GDP per Capita (USD) 23,40023,036e27,10129,73532,046
General Government Balance (in % of GDP) -0.1-4.3-4.0-2.9-2.0
General Government Gross Debt (in % of GDP) 8.618.520.021.422.4
Inflation Rate (%) 2.3-0.63.84.92.2
Unemployment Rate (% of the Labour Force) 4.46.86.56.05.4
Current Account (billions USD) 0.62-0.18-0.65-0.78-0.89
Current Account (in % of GDP) 2.0-0.6-1.8-2.0-2.1

Source: IMF – World Economic Outlook Database , October 2021

Note: (e) Estimated Data

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

Agriculture accounts for only 2.2% of the country's GDP and employs around 3.2% of the workforce (World Bank, latest data available). With rich reserves of shale oil, Estonia draws a considerable part of its energy production (around 60%) from this resource, which gives it self-sufficiency in terms of electricity. Arable land and permanent crops cover roughly almost 1 million ha, with 2 million ha under forest and 220 ha of organic crops. The main crops include cereals, potatoes and vegetables. According to the latest figures from Statistics Estonia, in 2021 total agricultural output reached EUR 1 billion, up by 9.3% year-on-year.

The industrial sector represents around 22.7% of the GDP and accounts for 28.7% of total employment. The main industrial subsectors are the food industry (dairy products and meat processing), electronics & IT (a traditional sector), the chemical and the wood processing industry. Altogether, the manufacturing sector alone contributes to an estimated 12.9% of the country’s GDP (World Bank). Preliminary figures from Statistics Estonia show that in 2021, industrial production rose 6.4%: production in the energy sector grew 19.2%; meanwhile, manufacturing output declined 6.4% and mining fell 15.7%.

The services sector is the most developed (in particular transport and logistics, biotechnology and financial services) and accounts for roughly 62.7% of the Estonian GDP, employing around 68.1% of the active population. The ICT segment shows the strongest performance, accounting for around 7% of total GDP and almost 6% of total employment (the country invested in this sector and created the TalTech’s School of Information Technologies and the Centre of Excellence in ICT Research - EXCITE). As per the country’s banking sector, it comprises 14 banks, of which nine are licensed credit institutions in Estonia and five are operating as branches of foreign credit institutions. The sector is dominated by foreign capital holding 85% of banking sector assets. The market is chiefly divided between Swedbank, SEB Bank, LHV Bank and Luminor Bank.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 3.2 28.7 68.1
Value Added (in % of GDP) 2.2 22.7 62.7
Value Added (Annual % Change) -6.1 -4.0 -2.1

Source: World Bank - Latest available data.

 
Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 USD 0.940.890.850.890.88

Source: World Bank - Latest available data.

 

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Foreign Trade

Estonia is considered one of the most liberal countries in the world and is very open to trade, which represents 141.9% of GDP (World Bank, latest edition). In 2020, the country mainly exported radio-telephony transmission tools (7.7%), petroleum oils other than crude (4.4%), prefabricated buildings (2.8%), and motor cars (2.8 %). The main imports comprised petroleum oils other than crude (5.9%), motor cars (5%), radio-telephony transmission tools 3.1%), and medicaments (2.8%).

In 2020, the country’s major trading partners were the European Union, led by Finland (15.1%), Sweden (10%) and Latvia (8.7%), Russia (8.4%), and the United States (7.7%). Imports came mainly from the EU area (9.8% Germany, 9% Finland and 5.4% Poland), China (9.3%), and Russia (9.1% - Comtrade).

Estonia's merchandise trade balance is structurally negative. According to figures from WTO, in 2020 the country exported goods worth USD 16.3 billion (+1.7% y-o-y), while imports totalled USD 17.3 billion (-3.8%). Nevertheless, when computing also the trade in services, the total balance of trade is positive and is estimated to account for 0.5% of the country’s GDP in 2020 (down from 4.1% one year earlier - World Bank). In fact, Estonia exported USD 6.4 billion worth of services, importing USD 6.2 billion (-19.6% and +7.8%, respectively). According to preliminary figures from the national statistics agency, exports totalled EUR 1.5 billion on the year to May 2021, a rise of 47%, while imports came to EUR 1.6 billion, up by 50%. Finland, the U.S. and Sweden were the largest destinations for the country’s exports, with Sweden seeing the largest increase of all recipient nations, particularly driven by telecoms equipment.

 
Foreign Trade Values 20162017201820192020
Imports of Goods (million USD) 14,94816,67319,14018,03517,341
Exports of Goods (million USD) 13,17114,55417,01716,11016,381
Imports of Services (million USD) 4,1914,6655,5665,7436,190
Exports of Services (million USD) 6,1086,7797,7877,9906,419

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20162017201820192020
Foreign Trade (in % of GDP) 150.4147.6146.3143.9141.9
Trade Balance (million USD) -902-1,030-1,432-994-202
Trade Balance (Including Service) (million USD) 8721,0737991,264-33
Imports of Goods and Services (Annual % Change) 6.54.05.73.80.9
Exports of Goods and Services (Annual % Change) 4.84.83.96.5-5.0
Imports of Goods and Services (in % of GDP) 73.471.871.969.970.7
Exports of Goods and Services (in % of GDP) 77.075.874.574.071.2

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20212022 (e)2023 (e)2024 (e)2025 (e)
Volume of exports of goods and services (Annual % change) 13.47.35.13.43.4
Volume of imports of goods and services (Annual % change) 14.68.26.04.74.5

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
Estonia belongs to about 180 international organizations. Estonia has bilateral investment promotion and protection agreements with the USA, Switzerland, Germany, Great Britain, the Czech republic, Austria, Ukraine, Belgium and Luxembourg.
 

Main Partner Countries

Main Customers
(% of Exports)
2020
Finland 15.1%
Sweden 10.0%
Latvia 8.7%
Russia 8.4%
United States 7.7%
See More Countries 50.1%
Main Suppliers
(% of Imports)
2020
Germany 9.8%
China 9.3%
Russia 9.1%
Finland 9.0%
Poland 5.4%
See More Countries 57.4%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
President: Alar KARIS (since 11 October 2021)
Prime Minister: Kaja KALLAS (since 26 January 2021)
Next Election Dates
Presidential: 2026
Parliament: March 2023
Main Political Parties
Estonia has a multi-party system. Political parties often work together to form coalition governments. The major political forces in the country are:

- Reform Party: centre-right, conservative liberalism, largest represented political faction
- Estonian Centre Party (K): centre-left, populist, has always secured parliamentary representation following independence. It is part of the ruling coalition
- Conservative People's Party of Estonia (EKRE): national conservatism, Estonian nationalism. It is part of the ruling coalition
- Isamaa (I): national conservatism, Christian democracy. It is part of the ruling coalition
- Social Democratic Party (SDE): centre-left, promotes social democracy.
Executive Power
The President is the chief of the state and is elected by the parliament for a five-year term (renewable once). The President is the commander-in-chief of the armed forces. He/she nominates the Prime Minister after approval by the parliament (generally leader of the majority party or coalition), for a 4 year term. The Prime Minister is the head of the government and also holds the executive powers, which include implementation of the law in the country and running the day-to-day affairs. The Council of Ministers is appointed by the Prime Minister and approved by the parliament.
Legislative Power
The legislature in Estonia is unicameral. The parliament is called State Assembly (or Riigikogu), it has 101 seats with its members elected by popular vote to serve four-year terms. The State Assembly is the highest organ of state authority. It initiates and approves legislation sponsored by the Prime Minister. The government is directly or indirectly dependent on the support of the parliament, often expressed through a vote of confidence. The government cannot dissolve the parliament but can recommend the same to President who has to take parliament into confidence before taking a decision. The citizens of Estonia enjoy considerable political rights. Estonia is among the world's leaders in e-governance and features an impressively transparent system in which government decisions are almost instantly made available on the internet.

The Judiciary is independent in Estonia, and generally free from government influence. The main source of the law is the Constitution of June 1992. The legal system is based on civil law system. No judicial review of legislative acts takes place in the country. Estonia being a member of the European Union, the national law in the country needs to comply with the conditions of the Community legislation. Estonia accepts compulsory ICJ jurisdiction, but with reservations.

 

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COVID-19 Country Response

COVID-19 epidemic evolution

To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in Estonia, please visit the official portal Koroonakaart.ee, providing information on the geographical distribution of the epidemic, as well as on the age and gender. The website of the Estonian Health Board publishes daily updates on the situation.
For the international outlook you can consult the latest
situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.

Sanitary measures

To find out about the latest public health situation in Estonia and the current sanitary measures in vigour, please consult the dedicated governmental portal Kriis.ee, as well as the website of the Estonian Police and Border Guard Board, including the up-to-date information on the containment measures put in place. Public health recommendations can be found on the website of the Estonian Health Board.

Travel restrictions

The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.

The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.

Import & export restrictions

Following the measures taken by the European Commission, an export license is required to export personal protective equipment outside of the European Union.
For updates consult the website of the Estonian Tax and Customs Board.
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to Estonia on the
International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

To know about the economic measures taken by the Estonian government to address the impact of the COVID-19 pandemic on the national economy, please visit the dedicated section on the official portal Kriis.ee. The Ministry of Economic Affairs and Communications and the Tax and Customs Board provide further information. Click here for info about the Temporary subsidy program under the Estonian Unemployment Insurance Fund.
The information on the EU’s economic response to COVID-19 and the actions to minimise the fallout on the EU member states’ economies of the COVID-19 outbreak is available on the website of the
European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Estonia government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Estonia in the
IMF’s Policy Tracker platform.

Support plan for businesses

For information on the local business support scheme and taxation measures established by the Estonian government to help businesses to deal with the economic impacts of the COVID-19 epidemic on their activity, please consult the website of the Ministry of Economic Affairs and Communications and that of the Estonian government. Further details can be found on the website of Enterprise Estonia (in Estonian) and on InvestInEstonia.
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the World Bank's Map of SME-Support Measures in Response to COVID-19.

Support plan for exporters

The Estonian government decided to lower the fees for Enterprise Estonia’s export services.
The European Commission adopted a Temporary Framework for State aid measures to support the economy in the COVID-19 outbreak, which enables short-term export credit insurance to be provided by the State where needed.

 

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