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Export-led growth was strong in 2011, but is projected to weaken substantially in 2012 due to the weak external environment, notably euro area tensions. As world trade growth improves, activity is projected to pick up again in 2013. Disinflation will be interrupted temporarily by oil price increases and electricity market liberalisation.

Estonia should introduce a fiscal rule that is consistent with medium-term objectives but allows the automatic stabilisers to operate. Spending increases on policies to activate long-term unemployed should be continued to spur further employment gains.