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Estonia The Estonian economy is expected to contract by 1.3% in 2023 before expanding by 3.2% in 2024, helped by lower energy prices. Inflation will fall to around 5% by the end of this year and continue to ease in 2024. Private consumption will remain subdued as real incomes remain under pressure. With higher interest rates, house prices are declining and housing investment is weak. Stronger external demand will support the initial recovery. The main risks are instability in energy prices and the uncertain impact of Russia’s war of aggression against Ukraine. While support for vulnerable households inadequately covered by the general social protection and investment in energy efficiency and security is warranted, fiscal policy should not add to inflationary pressures. The government should also focus on the distributional impact of planned consolidation measures, as well as on upgrading skills to facilitate continued convergence and the green transition. High inflation and uncertainty have taken a toll on the economy The Estonian economy contracted in the second half of last year and decreased overall by around 1% in 2022. The decline was driven by a considerable contraction in exports, notably outside of the euro area, as the war in Ukraine took its toll on trade. Private consumption fell due to higher energy prices and tighter financial conditions are becoming visible in weaker housing investment. Headline inflation peaked at 25.2% in August last year and has been easing since, down to 11.2% by May. The economic contraction continued in the first quarter of 2023, albeit at a slower pace, with GDP decreasing by 0.6% from the last quarter of 2022. While consumer and business confidence have improved this spring, industrial production in March and retail sales in April were lower than a year ago.
Estonia
Source: OECD Economic Outlook 113 database. StatLink 2 https://stat.link/qmju92
OECD ECONOMIC OUTLOOK, VOLUME 2023 ISSUE 1: PRELIMINARY VERSION © OECD 2023