Estonia: Economic and Political Overview
In this page: Economic Indicators | Foreign Trade in Figures | Sources of General Economic Information | Political Outline | COVID-19 Country Response
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After its recovery from the crisis, Estonian growth was affected by an unfavourable regional situation (European sanctions against Russia and the following counter-sanctions), but it grew at a fast pace in recent years until the breakout of the COVID-19 pandemic. ). In 2021, Estonia’s economy rebounded, whereas in 2022 GDP growth was sluggish: while it was estimated at 1% by the IMF, the EU Commission recorded a contraction of 0.3%. In fact, the national economy was severely hit by the steep rise in energy prices and suffered from a strong pass-through to other inflation components, therefore both private consumption and industrial output slowed markedly towards the end of the year. GDP, however, is forecast to return to growth in 2023 (1.8% according to the IMF forecast) as the current headwinds, notably inflation, weak external demand and low confidence gradually subside. 2024 should see a more robust expansion driven by a revitalisation of export demand and private consumption.
Estonia became a member of the European Union on May 1 2004 and was the first former Soviet country to join the OECD in May 2010. This Baltic republic has managed to move from a state-run and centralised economy to a dynamic market economy, liberalised by a succession of governments observing strict budgetary orthodoxy and modernising the country. The country has stood out, mainly thanks to its IT sector (the invention of Skype, mobile payment systems, internet voting, multifunctional electronic identity cards and initiatives in the sphere of cybersecurity), as well as its performances in the green energy sector. Furthermore, Estonia enjoys relative energy independence through the exploitation of shale oil, of which the country is one of the world's largest producers and which covers a large part of its electricity needs. In general, the country has stable public finances; in 2022, the general government fiscal deficit was contained (1.7% of GDP as per Fitch Ratings estimates) thanks to higher revenues prompted by the rise in inflation. For 2023, Fitch foresees a deficit of 4.4% of GDP (as opposed to 2% according to the IMF). As a result of widening fiscal deficits and weaker growth, the general government debt-to-GDP ratio is set to rise, reaching 20.3% by 2024 from 18.3% estimated for 2022. Although it is a marked increase compared to the pre-pandemic ratio of 8.5%, the ratio is still the lowest in the EU. The global energy price hikes and supply bottlenecks contributed to a rise in manufacturing, transport and delivery costs, with a strong pass-through to other inflation components, resulting in an overall rate of 21% over the course of 2022. The deceleration recorded from August is expected to continue in 2023 driven by declining commodity and energy prices, with the inflation rate projected at 9.5%, before it returns closer to the ECB’s target in 2024 (2.5%).
In recent years, the Estonian labour market has been characterized by labour shortages and consequently rising nominal wages. Unemployment increased to 6.6% in 2022, from 6.2% one year earlier. Corporate expectations for employment became more pessimistic towards the end of the year and the IMF forecasts the unemployment rate to slightly edge up to 6.8% in 2023. In 2021, the Estonian real GDP per capita (PPP) was estimated at USD 46,126 by the IMF, still below the EU average. According to the latest data published by Eurostat, 22.3% of the population is at risk of poverty.
| Main Indicators | 2020 | 2021 | 2022 (E) | 2023 (E) | 2024 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 31.35 | 37.22 | 38.13 | 41.55 | 44.56 |
| GDP (Constant Prices, Annual % Change) | -0.6 | 8.0 | -1.3 | -1.2 | 3.2 |
| GDP per Capita (USD) | 23,576 | 27,962 | 28,631 | 31,209 | 33,485 |
| General Government Balance (in % of GDP) | -5.4 | -4.0 | -0.7 | -3.5 | -3.0 |
| General Government Gross Debt (in % of GDP) | 18.5 | 17.6 | 17.2 | 21.0 | 23.1 |
| Inflation Rate (%) | -0.6 | 4.5 | 19.4 | 9.7 | 4.1 |
| Unemployment Rate (% of the Labour Force) | 6.8 | 6.2 | 5.6 | 6.1 | 5.7 |
| Current Account (billions USD) | -0.31 | -0.67 | -0.83 | -0.52 | -0.39 |
| Current Account (in % of GDP) | -1.0 | -1.8 | -2.2 | -1.2 | -0.9 |
Source: IMF – World Economic Outlook Database , Latest available data
Note: (e) Estimated Data
Agriculture accounts for only 2% of the country's GDP and employs around 3% of the workforce (World Bank, latest data available). With rich reserves of shale oil, Estonia draws a considerable part of its energy production (around 60%) from this resource, which gives it self-sufficiency in terms of electricity. Arable land and permanent crops cover almost 1 million ha, with 2.4 million ha under forest and 226 ha of organic crops. The main crops include cereals, potatoes and vegetables. According to the latest figures from Statistics Estonia, in 2022 total cereal production increased by 18.9% y-o-y (to 1.5 million tonnes), while the total agricultural output reached EUR 1.63 billion, up by 44.4%. In November 2022, the EU approved the Common Agricultural Policy strategic plan for Estonia for the 2023-2027 period, designed to shape the transition to a sustainable, resilient and modern agricultural sector.
The industrial sector represents around 23.1% of the GDP and accounts for 29% of total employment. The main industrial subsectors are the food industry (dairy products and meat processing), electronics & IT (a traditional sector), and the chemical and wood processing industries. Altogether, the manufacturing sector alone contributes to an estimated 13% of the country’s GDP (World Bank) and is export-oriented: in 2022, 67.4% of the total production of manufacturing was sold to foreign markets. Preliminary figures from Statistics Estonia show that in 2022, industrial production fell by 1.9% due to weaker performance in the second half of the year. Production decreased by 2.7% overall in the manufacturing sector.
The services sector is the most developed (in particular transport and logistics, biotechnology and financial services) and accounts for roughly 62.5% of the Estonian GDP, employing 68% of the active population. The ICT segment shows the strongest performance, accounting for around 7% of total GDP and almost 6% of total employment (the country invested in this sector and created the TalTech’s School of Information Technologies and the Centre of Excellence in ICT Research - EXCITE). Concerning the country’s banking sector, it comprises 14 banks, of which nine are licensed credit institutions in Estonia and five are operating as branches of foreign credit institutions. The sector is dominated by foreign capital holding more than 80% of assets. The market is chiefly divided between Swedbank, SEB Bank, LHV Bank and Luminor Bank (data European Banking Federation).
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
|---|---|---|---|
| Employment By Sector (in % of Total Employment) | 3.2 | 28.7 | 68.1 |
| Value Added (in % of GDP) | 2.0 | 23.1 | 62.5 |
| Value Added (Annual % Change) | -15.6 | 7.1 | 8.2 |
Source: World Bank - Latest available data.
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| Monetary Indicators | 2016 | 2017 | 2018 | 2019 | 2020 |
|---|---|---|---|---|---|
| Euro (EUR) - Average Annual Exchange Rate For 1 MUR | 0.03 | 0.03 | 0.02 | 0.03 | 0.02 |
Source: World Bank - Latest available data.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024
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Estonia is considered one of the most liberal countries in the world and is very open to trade, which represents 157% of GDP (World Bank, latest edition). In 2022, the country mainly exported mineral products (19%), electrical equipment (13%), wood (11%), and agricultural products (10%); while the main imports comprised mineral products (20%), electrical equipment (11%), machinery and mechanical appliances (10%), and base metals and related articles (10% - data Statistics Estonia).
In 2022, the country’s major trading partners were Finland (15% of total exports), Latvia (14%) and Sweden (9%). The top partner countries for Estonia’s imports of goods were Finland (16% of total imports), Lithuania, Germany, and Latvia (all three accounting for 10% - data Statistics Estonia). The biggest decrease occurred in imports from Belarus and Russia (down by EUR 484 million and 293 million, respectively) due to the ongoing conflict in Ukraine and the EU sanctions that followed. Overall, the EU accounted for 70% of total exports and 78% of imports.
Estonia's merchandise trade balance is structurally negative. According to figures from WTO, in 2021 the country exported goods worth USD 21.5 billion (+26.7% y-o-y), while imports totalled USD 23.6 billion (+36.1%). In terms of services, Estonia is a net exporter: in 2021 exports reached USD 9.9 billion against USD 8.2 billion in imports. According to the World Bank, the country’s trade balance was negative by 0.4% of GDP. According to figures from the national statistics agency, exports of goods increased by 17% and imports by 23% in 2022 vis-à-vis 2021. Their value was estimated at USD 21.2 billion and 24.5 billion, respectively. Re-exports from Estonia grew by 42%, while exports of domestic goods increased by 7% so that the share of goods of Estonian origin in total exports was 66%.
| Foreign Trade Indicators | 2017 | 2018 | 2019 | 2020 | 2021 |
|---|---|---|---|---|---|
| Imports of Goods (million USD) | 16,673 | 19,140 | 18,035 | 17,341 | 23,609 |
| Exports of Goods (million USD) | 14,554 | 17,017 | 16,110 | 16,381 | 21,518 |
| Imports of Services (million USD) | 4,665 | 5,566 | 5,743 | 6,190 | 8,259 |
| Exports of Services (million USD) | 6,779 | 7,787 | 7,990 | 6,419 | 9,943 |
| Imports of Goods and Services (Annual % Change) | 4.0 | 5.9 | 3.8 | 0.4 | 21.0 |
| Exports of Goods and Services (Annual % Change) | 4.8 | 2.9 | 6.1 | -5.3 | 19.9 |
| Imports of Goods and Services (in % of GDP) | 71.8 | 71.6 | 69.9 | 69.2 | 78.7 |
| Exports of Goods and Services (in % of GDP) | 75.8 | 74.3 | 73.9 | 69.3 | 78.3 |
| Trade Balance (million USD) | -1,030 | -1,436 | -1,035 | -279 | -1,535 |
| Trade Balance (Including Service) (million USD) | 1,099 | 842 | 1,249 | -44 | -178 |
| Foreign Trade (in % of GDP) | 147.6 | 145.9 | 143.8 | 138.5 | 157.0 |
Source: WTO – World Trade Organisation ; World Bank , Latest Available Data
| Main Customers (% of Exports) |
2022 |
|---|---|
| Finland | 14.1% |
| Latvia | 13.6% |
| Sweden | 8.9% |
| Russia | 6.0% |
| Lithuania | 5.9% |
| See More Countries | 51.6% |
| Main Suppliers (% of Imports) |
2022 |
|---|---|
| Germany | 9.4% |
| Finland | 9.1% |
| China | 8.8% |
| Russia | 8.4% |
| Lithuania | 6.7% |
| See More Countries | 57.5% |
Source: Comtrade, Latest Available Data
Source: Comtrade, Latest Available Data
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Source: United Nations Statistics Division, Latest Available Data
The Judiciary is independent in Estonia, and generally free from government influence. The main source of the law is the Constitution of June 1992. The legal system is based on the civil law system. No judicial review of legislative acts takes place in the country. Estonia being a member of the European Union, the national law in the country needs to comply with the conditions of the Community legislation. Estonia accepts compulsory ICJ jurisdiction, but with reservations.
The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).
The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.
Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House
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Latest Update: September 2023
