Author Description

Estonia experienced strong growth of loan-financed domestic demand after EU accession in 2004, followed by the burst of the real estate bubble and the international financial crisis. The economy recovered quickly. Regulatory settings are generally favourable to sustain growth and the government is initiating further substantial structural reforms. The fiscal position is strong and macroprudential policies have been strengthened. However, in recent years economic growth has slowed, in part due to weak external demand. Real GDP per capita is still lower than in the boom peak of 2007. The productivity gap with respect to high-income countries is currently diminishing only slowly. Skill mismatches contribute to structural unemployment and emigration is reducing labour supply. At unchanged policies higher income growth will tend to raise greenhouse gas emissions, which are among the highest in the OECD in relation to GDP. Key challenges for Estonia are therefore to raise productivity growth, including by making the most of human capital, while containing greenhouse gas emissions.