フィンランド共和国
ラトビア共和国
スウェーデン王国
リトアニア共和国
ドイツ連邦共和国A return to growth in 2025
The Estonian economy is expected to finally return to growth in 2025 after being heavily penalised by the fallout from sanctions and counter sanctions following Russia's invasion of Ukraine in 2022. The war triggered supply-side disruptions, notably the halt of Russian gas pipeline supplies, driving production costs and prices well above the eurozone average, thereby harming the country's competitiveness. The recovery will be driven by a rebound in private consumption and renewed demand in Nordic and German export markets. Unemployment is expected to continue declining and should approach the European Union average of 6%. The easing of the ECB's monetary policy, coupled with fiscal stimuli, will allow business and household investment to pick up. European funds will support public investment, particularly through the Recovery and Resilience Facility (EUR 953 million allocated, EUR 573 million of which will remain available until August 2026), targeting the energy, transport, health, and defence sectors. However, the gradual recovery will not enable activity to return to the 2021 level. Moreover, inflation is likely to remain relatively high due to the rebound in the price of liquefied natural gas (LNG) imported via terminals in Finland and Lithuania.
Services, particularly those involving Information and Communication Technologies (ICT), will continue to be growth drivers, thus offsetting the persistent fragility in the manufacturing sector (metallurgy, wood, electrical equipment) and construction. Despite a 5% increase in the number of tourists in 2024 compared to 2023, tourist numbers remain 5% below pre-war levels, mainly due to the absence of Russian visitors. The additional funding of EUR 370 million for the Rail Baltica project, designed to integrate the Baltic states into the European rail network, will boost construction, strengthen regional trade, and improve cross-border connectivity. The inauguration of the largest solar park in the Baltic states in Kirikmäe, Pärnu County at the end of 2024 marked a turning point in Estonia's green transition. This project is part of a national strategy to expand solar capacity, aimed at enhancing energy security while supporting local communities. This initiative paves the way for foreign direct investment (FDI) in the Estonian solar sector, now perceived as attractive due to a stable regulatory framework and a growing market. The country is positioning itself as an emerging player in renewable energy in Europe, combining technological expertise with environmental commitment.
A budget under pressure from defence
In 2024, the deficit was moderate despite the economic recession and increased military spending related to the war in Ukraine. It is expected to remain roughly the same in 2025 on back of 2% increases in VAT (to 24%) and income tax rates in July 2025, which will once again offset the rise in military spending after a similar increase in January 2024. Estonia will not have trouble financing its deficit as it has the lowest debt ratio of the EU. Given low growth and the unpopularity of the ruling coalition, it is increasingly likely that the government will adopt a more expansionary fiscal policy in 2025 in the run-up to the 2027 elections.
The current account deficit that emerged in 2020 persisted in 2024 due to sluggish demand, particularly for electronics, wood, and furniture in Nordic countries. For 2025, an improvement is expected thanks to a recovery in exports, especially in services. The business environment will remain favourable, shored up by advanced digital infrastructure and a skilled workforce. In 2023, foreign direct investment (FDI) increased by 10%, reaching EUR 2 billion, mainly in the technology and industrial sectors, which is an upward trend that is expected to continue in the coming years.
Political stability despite a gloomy economic and geopolitical context
The political situation remains generally stable, with Alar Karis serving as President since October 2021, and Kristen Michal, from the Reform Party (center-right liberal), as Prime Minister since July 2024. The latter succeeded Kaja Kallas, who resigned to become the EU High Representative for Foreign Affairs. The current government, formed after the March 2023 elections, comprises three parties: the Reform Party, the Social Democratic Party (SDE), and the liberal party Eesti 200. The coalition has a solid majority of 60 seats out of 101. Although the majority protects the country from a political crisis, the government’s growing unpopularity due to the country’s lacklustre economic performance has prompted a minor political risk that is nonetheless not a great menace. The next legislative elections are scheduled for March 2027, while local elections will be held in October 2025.
On the social and international fronts, Estonia faces challenges related to the integration of its Russian-speaking minority (25% of the population), particularly as a result of the gradual phasing-out of Russian-language education and proposed restrictions on the voting rights of Russian and Belarusian citizens in local elections. In terms of foreign policy, Estonia maintains a firm stance towards Russia, actively supporting Ukraine while strengthening its own security within NATO and the EU, in conjunction with other Baltic countries. Relations with neighbouring Baltic states and Nordic countries remain strong.
