Growth is projected to strengthen gradually in the coming two years. It will be supported by an upswing of investment and exports, which will benefit from stronger growth in the European Union. Private consumption will grow in line with real household income.
The government’s fiscal stance is broadly neutral and public debt is the lowest of OECD countries. More investment is essential to address some of the Estonia’s needs, including on skills and education, and on infrastructure. Improving skills and reducing taxes on low labour earnings would boost employment and make growth more inclusive. Improving knowledge transfer to Estonian firms by promoting applied research and collaboration with foreign institutions would raise productivity.
Tax rates on energy sources should be aligned and raised according to their CO2 emission content. Incentives for operators of heating networks to improve efficiency should be strengthened. Low-income households should receive more financial support for energy-saving investments.