After exceeding 4% in 2017, economic growth is projected to decline to 3% by 2019. Public and private investment should recover from past low levels, notably supported by resumed disbursement of EU funds. High wage growth, due to the tightening labour market, will sustain private consumption. While this poses a risk to competitiveness, export growth will remain strong.
Fiscal room is available for measures to increase the productive capacity of the economy and to foster inclusive growth. Public spending should be used to tackle important societal issues, including high inequality in wealth and health status and significant gender gaps. The planned accommodative fiscal stance is appropriate, but fiscal initiatives should rely on ex-ante evaluation to guarantee high economic and social returns.
Financial vulnerabilities have receded since the global financial crisis. The banking sector, concentrated and mostly foreign-owned, is highly profitable and enjoys low non-performing loans. Capital outflows from Nordic parent banks are nevertheless a tail risk that could undermine the recovery of investment.
Economic Survey of Estonia (survey page)