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What’s important to know about the Estonian economy?

Estonia has gone through rapid transformation since regaining independence in 1991 and it is currently one the most developed countries among the former Eastern Bloc. Estonia joined the European Union in 2004 and adopted the Euro in 2011.

The structure of the economy is diverse, with services accounting for over 70% of the GDP. Compared to other Organisation for Economic Co-operation and Development (OECD) countries, the contribution to trade, tourism, and transportation sector is higher, whereas the share of other services is lower. The largest contributors to the GDP are manufacturing, wholesale and retail trade and activities related to construction and real estate.

Estonia has strong economic ties to the Nordic countries that account for the majority of the direct foreign investments. They are also the main trading partners. The largest export countries are Finland, Sweden, Germany, Latvia and Norway, whereas the importance of Russia, which used to hold the third position in exports, has been decreasing rapidly.

An important aspect to consider is also the proximity to Finland with over 2.4 million visits from Finland to Estonia per annum and a high number of Estonians working in Finland, either temporarily or permanently.

Estonia has transformed overnight when it comes to digitalisation of its public and financial sector. The country has a notable IT cluster with companies like Skype, Twilio, TransferWise, Kuehne+Nagel and others operating their development centres in Estonia.

Estonia also ranks high in international comparison of economic freedom (9th place) and ease of doing business (12th place).

Economic development was very fast in the years 2000 – 2007, driven by inflow of foreign investments, opening of the EU funds, growth in disposable income and improving availability of credit with GDP growth peaking at 10.5% in 2006. Eventually, this led to overheating of the economy, emergence of the retail bubble and subsequent crash in line with the disruption of the global economic crisis in 2008. As a result, GDP dropped by 5% in 2008 and by 14.2% in 2009 with industrial production decreasing by 4.6% and 23.9% respectively.

From 2010 onwards, the Estonian economy has recovered well from the crisis and has shown positive economic development thereafter. The GDP growth since 2013, after fast initial adjustment, has been moderate with an estimated 1.2% in 2015 and 2% for 2016. Although the long-term goal is to accelerate economic development and move ahead in convergence towards the wealthier EU countries (the income level in Estonia is currently 54% of the EU average), the GDP growth rate in the coming years is expected not to exceed 2-3%.

Low unemployment rates and a very high participation rate of the labour force has been putting upward pressure on wages and improvement of competitiveness of the economy. Increasing cost level is one of the key challenges that need to be handled in the coming years. This applies particularly to exporting sectors that face international competition, whereas growing domestic demand has benefited retail trade, the financial sector, real estate and other segments directed to servicing the domestic market.

With the global health crisis and economic crash of 2020, economies the world over will likely contract. But, as Bondora was established during the recession of 2008, we’re confident that despite tough economic times, Bondora will still continue to provide a safe, secure and trusted online platform for borrowers and investors alike.

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* Capital at risk. Investments made with Bondora are not guaranteed, nor is the preservation of value invested guaranteed. Please note that the yield achieved in past periods does not guarantee the rate of return in future periods. The yield of Go & Grow is up to 6.75% p.a. Before deciding to invest, please review our risk statement and consult with a financial advisor if necessary.