Estonian economic growth in 2015 was the slowest of the past six years



  • Real household incomes and sales by companies in the domestic market have increased rapidly, but goods exports declined further
  • The fall in corporate profits over several years indicates that the economy will have to adjust through faster productivity growth or slower wage growth
  • The monetary policy decisions of the European Central Bank are keeping financing conditions for investment favourable

Economic growth in Estonia slowed in 2015 and was the slowest of the past six years, remaining below the long-term potential of the country. Growth slowed mainly because of weaknesses in the economies of neighbouring countries and this restricted opportunities for exports, though sales in the domestic market grew rapidly as household incomes and purchasing power increased. Income growth has been spurred by a rise in the minimum wage, wage agreements in education and health, and more generally by the decline in the working age population and in available labour resources.

Estonian exports of goods have dropped in the past two years and Estonian exports lost market share in target markets in 2015. The latest foreign trade data indicate that exports continued to fall at the start of this year. As the fall in exports has been accompanied by a reduction in company profits and a rise in wage costs, the issue of competitiveness in the economy has been to the fore. Possible problems in competitiveness and the risk that the economy is out of balance were also highlighted last year by the European Commission.

Faster Estonian growth will depend a lot on the performance of target markets. In the first months of this year the economic figures in the euro area have proven weaker than expected and the March forecast of the European Central Bank concluded that growth in 2016 will be lower than was earlier forecast. The spluttering recovery in growth in the euro area means that the stimulus to growth in the Estonian economy provided by external demand will be modest.

Energy prices have been falling for several years by now, and this has significantly reduced inflation. Consumer prices have been falling in Estonia for about two years now, and in February inflation in the euro area turned negative again. For this reason the Governing Council of the European Central Bank decided at its meeting in March to ease monetary policy even further, which means that financing conditions will continue to be very favourable in Estonia and in the euro area.

Eesti Pank will publish a new forecast in June.

From 2016 the Eesti Pank economic review The Estonian Economy and Monetary Policy is being released four times a year rather than two. The review contains analysis of the main recent events in the global and Estonian economies. The reviews in June and December also contain the forecast for the Estonian economy for the current year and the next two years.