In 2015, growth slowed down as Estonia's economy suffered from weak external demand and investment, while strong wage growth supported private consumption. From a rate of 1% in 2015, growth is projected to accelerate to more than 2 % in the coming years, as external demand and investment are expected to recover gradually. At the same time, household consumption is projected to slow down due to a less dynamic wage growth, mainly linked to wage moderation in the public sector. The fiscal position remains strong, with a budget surplus and a negligible government debt.
Estonia is experiencing no macroeconomic imbalances. Rising unit labour costs may expose the country to competitive losses, but are projected to moderate in light of productivity growth and falling real wage growth. Housing prices have risen strongly, although in line with income developments, and the supply of housing is expected to adjust to recovering demand. Nevertheless, further price increases may pose risks for the real economy, which requires attention. Policy efforts to boost productivity and higher value-added exports need to be stepped up and efforts to boost labour supply and ease wage pressures are still at an early stage. Several macro-prudential policies have been implemented with an impact on house prices yet to be assessed.
Read a complete analysis of Estonia's economy in the country report 2016 [2 MB]
2015 recommendations in brief
The Commission has made three country-specific recommendations to Estonia to help it improve its economic performance. These are in the areas of: public finances; labour market; education and research and innovation.