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.
After a very robust expansion in 2021, GDP growth is expected to slow to 1.3% in 2022 and 1.8% in 2023, owing to the war in Ukraine. Household purchasing power is suffering as inflation far outpasses nominal wage growth. Export opportunities are expected to shrink, which, together with reduced confidence, will weaken investment. The gradual drawdown of savings accumulated during the pandemic and in individual pension funds, as well as the inflow of EU funds, will support the economy. Unemployment is expected to increase, as a large number of refugees are entering the country and not all of them are likely to find jobs immediately.
The top policy priority is to recover strong labour market performance while preparing the workforce for greater use of digital technologies and low-carbon economic growth. Unemployment is expected to remain higher than before the pandemic and several categories of workers risk losing attachment to the labour market.
©Shutterstock/Anton PetrusRead full country note
2021 Structural Reform Priorities