The Estonian economy is expected to contract by 1.3% in 2023 before expanding by 3.2% in 2024, helped by lower energy prices. Inflation will fall to around 5% by the end of this year and continue to ease in 2024. Private consumption will remain subdued as real incomes remain under pressure. With higher interest rates, house prices are declining and housing investment is weak. Stronger external demand will support the initial recovery.
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Since its independence, Estonia has made tremendous progress towards greater economic prosperity. Estonia enjoys solid institutions, political stability, a strong and credible ﬁscal policy, as well as a robust ﬁnancial sector. Estonia is also a frontrunner in digital governance and innovation. Stable and secure digital services are in fact one of the factors that have allowed Estonia to cushion better than others the sanitary and economic shock from the pandemic. After an impressive post-pandemic rebound, a renewed focus on structural reforms will help Estonia remain on a path of rapid convergence and cushion the new shock entailed by the war in Ukraine. Reforms should focus on addressing labour shortages and skills mismatches, while protecting the existing ﬂexibility of the labour market.