Estonian economy

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

The structure of the economy is diverse with services accounting for over 70% of the GDP. Compared to the other OECD countries contribution of 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 majority of the direct foreign investments and are also the main trading partners. The largest export countries are Finland, Sweden, Germany, Latvia and Norway, whereas importance of Russia that used to hold the third position in exports has been decreasing rapidly.

Important aspect is also proximity to Finland with over 2.4 million visits from Finland to Estonia per annum and high number of Estonians working in Finland whether temporarily or permanently.

Estonia has transformed fast in the field of digitalisation of its public and financial sector. The Country has 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 retail bubble and subsequent crash in line with disruption of 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.

Starting from 2010 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 1.2% in 2015 and for 2016 economic growth of around 2% is estimated. 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 and very high and participation rate of labour force have been putting upward pressure on wages and improvement of competitiveness of the economy in the environment of increasing cost level is one of the key challenges that needs 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, financial sector, real estate and other segments directed to servicing of the domestic market.

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