Data from Statistics Estonia show that growth in the Estonian economy over the year was 0.7% in the fourth quarter of last year, while GDP was 0.1% lower than in the third quarter. Although the economy grew, there was no sharp upswing and growth was more modest than in earlier years.

The decline in private consumption reflected the tightening of fiscal policy, as the budget deficit in 2025 was forecast to be smaller than that in 2024. A large part of inflation in the fourth quarter came from tax rises, which restrained consumption. The harmonised index of consumer prices shows that yearly inflation was 4.4% in the fourth quarter. With tax rises excluded, prices rose by only 1.8%. There was a particular decline in consumption related to transport, which came about primarily because fewer vehicles were purchased. Sales of vehicles were particularly high at the end of 2024 in anticipation of the introduction of the car tax.

The impact of fiscal policy on consumption should turn in 2026. The effect of tax rises will gradually fade out from inflation during the year, and growth in household incomes will now be boosted by the change in the personal income tax system, which will cause the average wage after taxes to rise much faster than the labour costs of companies.

Investment increased broadly in the fourth quarter with the main exception of transport vehicles, in which investment was down. Investment in other groups of goods like machinery, equipment and buildings was up as both corporate and general government spending increased.

Demand in the fourth quarter was broadly in line with what had been projected, but growth in the economy was still a little more modest than forecast, as demand was met from existing inventories and so production increased by less than expected. Inventories shrank by around 4% of GDP in the fourth quarter.

Sectors that contributed to growth in the economy were exporting ones like manufacturing, IT and business services. The value added from branches of the economy focused on the domestic market, like construction and public services, was down though. The volume of exports was up by around 5% over the year, with exports to countries in the European Union growing by almost 6%.

GDP should grow faster moving forwards as the impact of the fiscal stimulus on consumption becomes more evident and the growth in spending on defence throughout Europe increases demand in Estonia’s target markets.

Additional information:
Hanna Jürgenson
Communications officer
Eesti Pank
Tel 5692 0930
Press enquiries: [email protected]