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Economic and political overview

Economic Overview

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 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 (-3%). After eight quarters of contraction, real GDP remained flat in the second and third quarters of 2024, returning to positive territory only in the fourth quarter. However, GDP growth was still negative for the year as a whole, with a decline of -0.3%, according to Statistics Estonia. Weak demand in Estonia’s main trading partners, especially Finland, Sweden, and other Baltic economies, continues to limit export growth. Russia’s war in Ukraine has raised import costs, disrupted trade, and harmed investor confidence. Private consumption is expected to stay weak in 2025 due to tax hikes and the delayed minimum tax-free threshold, limiting purchasing power. Despite higher wages and lower interest payments, consumer confidence is low, and rising unemployment curbs spending. Investment will remain weak, with low capacity utilisation and muted demand, though lower funding costs may help. Exports should improve slightly, and easier monetary policy will help lift the economy from recession. Estonia’s GDP is projected to grow by 1.1% in 2025 and 2.6% in 2026, with consumption recovering as purchasing power improves (data EU Commission).

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 covers a large part of its electricity needs. In general, the country has stable public finances; in 2024, the general government fiscal deficit was estimated at 3% of GDP, up from 2.8% in 2023, due to the ongoing recession and continued military spending related to Russia’s war in Ukraine. In 2025, the deficit is expected to remain at 3.0% of GDP, with measures such as delaying the tax-free allowance increase to 2026, raising the personal income tax rate to 22%, increasing excise duties on alcohol, tobacco, and energy goods, introducing a new emissions-based car tax, and applying a 24% security surcharge on VAT to help contain it. However, expenditures are set to rise, mainly due to higher defence and social benefit spending. Public debt is forecast to increase from 20.2% of GDP in 2023 to 25.4% in 2026 (data EU Commission). Inflation for 2024 was 3.5%, with 1.6% driven by the increase in consumption taxes, according to official government data, and is expected to remain high in 2025 due to substantial tax increases in the new budget. HICP inflation is forecast at 3.6% for 2025, with a slowdown to 2.4% in 2026 as the impact of tax measures fades and demand weakens.

The unemployment rate rose to 7.5% in 2024, up from 6.4% the previous year, with employment expectations turning more negative. Employment is expected to decline in 2024 and 2025. However, population ageing is likely to limit further increases in unemployment, which is projected to average 7.7% in 2025 and 7.2% in 2026 (EU Commission). In 2024, the Estonian real GDP per capita (PPP) was estimated at USD 48,008 by the IMF, still below the EU average. According to the latest data published by Eurostat, about 24.2% of the population is at risk of poverty.

 
Main Indicators 2023 (E)2024 (E)2025 (E)2026 (E)2027 (E)
GDP (billions USD) 41.3043.0445.3147.5849.58
GDP (Constant Prices, Annual % Change) -3.0-0.91.62.32.0
GDP per Capita (USD) 30,13831,53133,22534,93136,444
General Government Balance (in % of GDP) -3.0-2.1-3.6-3.8-3.8
General Government Gross Debt (in % of GDP) 19.321.825.428.731.7
Inflation Rate (%) 9.13.42.01.92.0
Unemployment Rate (% of the Labour Force) 6.47.57.16.86.6
Current Account (billions USD) -0.72-1.46-1.48-1.50-1.53
Current Account (in % of GDP) -1.7-3.4-3.3-3.1-3.1

Source: IMF – World Economic Outlook Database , October 2021

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

Agriculture accounts for only 1.9% of the country's GDP and employs around 2.6% 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 almost 1 million ha, with 2.4 million ha under forest and 226 ha of organic crops. The main crops include cereals, potatoes, and vegetables. Overall, Crops make up approximately 50% of agricultural output, with cereals representing nearly half of this share. Animal products account for just over 40%, with milk production being the largest contributor, at 23% of total agricultural output (EU Commission data). According to the latest figures from Statistics Estonia, in 2024, total cereal production decreased by 8.6% y-o-y (to 1.3 million tonnes), while the total agricultural output stood at EUR 1.28 billion, down by 1.9%.

The industrial sector represents around 21.7% of the GDP and accounts for 27.4% of total employment. The main industrial subsectors are the food industry (dairy products and meat processing), electronics & IT (a traditional sector), and the chemical and wood processing industries. Altogether, the export-oriented manufacturing sector alone contributes to an estimated 12% of the country’s GDP (World Bank). According to Statistics Estonia, in 2024, the total production of industrial enterprises fell by 4% in constant prices compared to the previous year. Among the three industrial sectors, output in manufacturing declined by 4.4%, remained unchanged in electricity production, and rose by 2.9% in mining.

The services sector is the most developed (in particular transport and logistics, biotechnology, and financial services) and accounts for roughly 64.5% of the Estonian GDP, employing 70% of the active population. The ICT segment shows the strongest performance, accounting for nearly 7% of total GDP and employment (the country invested in this sector and created TalTech’s School of Information Technologies and the Centre of Excellence in ICT Research – EXCITE). The tourism sector is also significant for the economy: According to Statistics Estonia, in 2024, Estonian accommodation establishments hosted 3.6 million tourists, marking a 5% increase compared to 2023, but still 5% below the pre-pandemic level. The country’s banking sector comprises 13 banks, of which nine are licensed credit institutions in Estonia and four are operating as branches of foreign credit institutions. The sector is largely controlled by foreign capital, which holds approximately 70% of the banking sector assets, equivalent to EUR 40 billion or 106% of the country’s GDP in 2023. The market is chiefly divided between Swedbank, SEB Bank, LHV Bank, and Luminor Bank (data European Banking Federation).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 2.6 27.4 70.0
Value Added (in % of GDP) 1.9 21.7 64.5
Value Added (Annual % Change) -0.6 -10.0 -0.8

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 155% of GDP (World Bank, latest edition). In 2023, the country's primary exports included cars (EUR 895 million), communication equipment (EUR 883 million), electricity (EUR 433 million), prefabricated buildings, whether complete or assembled (EUR 429 million), and refined petroleum products (EUR 418 million). Its main imports comprised cars (EUR 1.56 billion), refined petroleum products (EUR 961 million), electricity (EUR 741 million), communication equipment (EUR 713 million), and packaged medicaments (EUR 596 million - data Statistics Estonia).

Over the same period, the leading export destinations for Estonia were Finland (EUR 3.07 billion), Latvia (EUR 2.16 billion), Sweden (EUR 1.7 billion), Lithuania (EUR 1.49 billion), and Germany (EUR 1.2 billion). The top countries of origin for imports were Finland (EUR 3.29 billion), Germany (EUR 2.47 billion), Latvia (EUR 2.32 billion), Lithuania (EUR 2.18 billion), and Sweden (EUR 1.63 billion - data Statistics Estonia). Overall, Estonia's main trading partners in 2023 were the member states of the European Union, accounting for 74% of exports and 86% of imports.

Estonia's merchandise trade balance is structurally negative. According to figures from the WTO, in 2023, the country exported goods worth USD 19.6 billion (-12.1% y-o-y), while imports totalled USD 22.9 billion (-12.7%). In terms of services, Estonia is a net exporter: in 2023, exports reached USD 12.4 billion against USD 9.6 billion in imports. According to Statistics Estonia, in 2024, exports of goods totalled EUR 17.4 billion, while imports reached EUR 20.7 billion at current prices. The trade deficit was EUR 3.3 billion, which is EUR 275 million higher than in 2023.

 
Foreign Trade Values 20192020202120222023
Imports of Goods (million USD) 18,02517,32423,61326,32122,963
Exports of Goods (million USD) 16,10116,34021,56022,38119,669
Imports of Services (million USD) 5,7706,4679,0608,7939,672
Exports of Services (million USD) 8,0576,53410,13811,28612,444

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

Foreign Trade Indicators 20192020202120222023
Foreign Trade (in % of GDP) 140.4137.4160.4174.6154.9
Trade Balance (million USD) -1,131-477-1,613-2,961-2,465
Trade Balance (Including Service) (million USD) 1,176-416-529-476351
Imports of Goods and Services (Annual % Change) 3.70.822.75.0-6.7
Exports of Goods and Services (Annual % Change) 5.0-4.122.15.0-9.0
Imports of Goods and Services (in % of GDP) 68.369.280.887.977.0
Exports of Goods and Services (in % of GDP) 72.068.279.586.777.9

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20242025 (e)2026 (e)2027 (e)2028 (e)
Volume of exports of goods and services (Annual % change) -1.22.04.03.53.3
Volume of imports of goods and services (Annual % change) 0.72.34.03.83.5

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)		 2023
Finland 15.4%
Latvia 11.6%
Sweden 9.1%
Lithuania 8.1%
Germany 6.4%
See More Countries 49.3%
Main Suppliers
(% of Imports)		 2023
Germany 11.1%
China 9.3%
Finland 8.6%
Lithuania 6.6%
Poland 6.4%
See More Countries 58.0%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
President: Alar KARIS (since 11 October 2021)
Prime Minister: Kristen MICHAL (since 23 July 2024)
Next Election Dates
Presidential: 2026
Parliament: March 2027
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
- Estonia 200 (E200): liberal, supports the government coalition
- Social Democratic Party (SDE): centre-left, promotes social democracy
- 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
- Estonian Centre Party (K): centre-left, populist, has always secured parliamentary representation following independence
- Estonian Nationalists and Conservatives (ERK): right-wing, nationalist and conservative, founded in 2024.
Executive Power
The President is the head of state and is elected by Parliament for a five-year term (renewable once). If Parliament fails to elect a President, an electoral college composed of MPs and local government representatives takes over the process. The President is the commander-in-chief of the armed forces. He/she nominates the Prime Minister after approval by Parliament (generally the leader of the majority party or coalition). The Prime Minister is the head of government and holds executive powers, including the implementation of laws and the day-to-day administration of the country. The Council of Ministers is appointed by the President on the proposal of the Prime Minister and must be approved by Parliament.
Legislative Power
The legislature in Estonia is unicameral. The Parliament, called the Riigikogu, has 101 seats, with its members elected by popular vote to serve four-year terms. The Riigikogu initiates and approves legislation, which may be proposed by MPs, parliamentary committees, the government, or, in certain cases, the President. The government is directly or indirectly dependent on the support of Parliament, often expressed through a vote of confidence. The government cannot dissolve Parliament, but in cases such as the rejection of the national budget or a failed vote of confidence, the President may call for early elections.

The citizens of Estonia enjoy considerable political rights. Estonia is among the world's leaders in e-governance, with a highly transparent system in which government decisions are almost instantly made available online.

The judiciary is independent in Estonia and generally free from government influence. The main source of law is the Constitution of June 1992. The legal system follows the civil law tradition, and judicial review of legislative acts is carried out by the Supreme Court (Riigikohus). Estonia is a member of the European Union, meaning national law must comply with EU legislation and the rulings of the European Court of Justice (ECJ). Estonia accepts compulsory jurisdiction of the International Court of Justice (ICJ) but with reservations.
 

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