Estonian GDP grew by 2.4% over the year to the first quarter, and by 1.1% over the fourth quarter of 2025. The growth was strongly driven by domestic consumption. Changes to the personal income tax system increased the incomes of households and so their capacity to consume. General government spending also increased, probably through spending on defence. This probably had a smaller direct effect on growth than the tax changes did, because higher spending on defence leads to an increase in imports.

The budget deficit is supporting economic growth in the short term, but in the longer term it will increase the debt burden. This makes it important to reduce the budget deficit in the coming years. Governor of Eesti Pank Madis Müller has proposed that the political parties should agree to reduce the budget deficit in order to restrain the growth in the national debt.

The growth in domestic consumption was supported not only by the fiscal stimulus but also by the economic environment stabilising. Inflation has fallen and has been 2% of late in consumer prices if the impact of tax changes is excluded. The economic environment becoming more stable makes consumers more confident, and this was seen in the first quarter in larger sales of cars and increased spending on travel. The introduction of the vehicle tax meant that car sales were a lot lower a year ago, but the number of cars registered for the first time in March and April was around the same as in 2024.

Although domestic consumption increased in the first quarter, the growth in exports was relatively modest and investment declined. Investment is seasonal and is commonly lower in the first quarter, so the decline in it in the first quarter should not be given too much weight, since individual transactions being made or postponed can have quite a major impact. It is notable with exports that manufacturing, which is one of the main exporting sectors in Estonia, was the sector that contributed quite a large part of the growth in the economy.

Quarterly enterprise statistics show that growth was strong in the corporate sector for a second consecutive quarter. Corporate data show that retail, IT, logistics and business services were among the sectors driving the growth. The value added in GDP from information and communications fell at constant prices though.

It should be noted when looking at the growth in the first quarter that the rise in energy prices and problems in supply chains caused by the war in Iran had not yet had a substantial impact. Those factors should start to become more evident in the second quarter.

Eesti Pank will publish an updated forecast on 16 June.

Additional information:
Hanna Jürgenson
Eesti Pank
Communications Specialist
Phone 56920 930 
Press enquiries [email protected]