
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) | 41.30 | 43.04 | 45.31 | 47.58 | 49.58 |
GDP (Constant Prices, Annual % Change) | -3.0 | -0.9 | 1.6 | 2.3 | 2.0 |
GDP per Capita (USD) | 30,138 | 31,531 | 33,225 | 34,931 | 36,444 |
General Government Balance (in % of GDP) | -3.0 | -2.1 | -3.6 | -3.8 | -3.8 |
General Government Gross Debt (in % of GDP) | 19.3 | 21.8 | 25.4 | 28.7 | 31.7 |
Inflation Rate (%) | 9.1 | 3.4 | 2.0 | 1.9 | 2.0 |
Unemployment Rate (% of the Labour Force) | 6.4 | 7.5 | 7.1 | 6.8 | 6.6 |
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.
