Economy of Estonia - The Economy Today

The Economy Today

Estonian economy was one of the fastest growing in the world until 2006 with growth rates even exceeding 10% annually. Despite some concerns both in and outside of the country, the Estonian economy and its currency remained highly resilient and solvent.

Until recent years, the Estonian economy has continued to grow with admirable rates. Estonian GDP grew by 6.4% in the year 2000 and with double speeds after accession to the EU in 2004. The GDP grew by 7.9% in 2007 alone. Increases in labor costs, rise of taxation on tobacco, alcohol, electricity, fuel, and gas, and also external pressures (growing prices of oil and food on the global market) are expected to raise inflation just above the 10% mark in the first months of 2009.

In the first quarter 2008, GDP grew only 0.1%. The government made a supplementary negative budget, which was passed by Riigikogu. The revenue of the budget was decreased for 2008 by EEK 6.1 billion and the expenditure by EEK 3.2 billion.

Estonia joined the World Trade Organization in 1999. A sizable current account deficits remains, but started to shrink in the last months of 2008 and is expected to do so in the near future.

In the first quarter of 2011, the average monthly gross wage in Estonia was €792 (12,392 kroons, US$1,125).

Estonia is nearly energy independent supplying over 90% of its electricity needs with locally mined oil shale. Alternative energy sources such as wood, peat, and biomass make up approximately 9% of primary energy production. Estonia imports needed petroleum products from western Europe and Russia. Oil shale energy, telecommunications, textiles, chemical products, banking, services, food and fishing, timber, shipbuilding, electronics, and transportation are key sectors of the economy. The ice-free port of Muuga, near Tallinn, is a modern facility featuring good transshipment capability, a high-capacity grain elevator, chill/frozen storage, and brand-new oil tanker off-loading capabilities. The railroad serves as a conduit between the West, Russia, and other points to the East.

After a long period of very high growth of GDP, the GDP of Estonia decreased by a little over 3% on a yearly basis in the 3rd quarter of 2008. In the 4th quarter of 2008 the negative growth was already −9,4%. Some international experts and journalists, who like to view the three Baltic states as a single economic identity, have failed to notice that Estonia has constantly performed better than Lithuania and Latvia on many fundamental indicators. Still, in 2009 Estonia was one of the five worst performing economies in the world in terms of annual GDP growth rate. The current account deficit and inflation is lower than in Latvia, the GDP per capita is higher than in Latvia and Lithuania, Estonia's public debt is a very low 3.8% of GDP and government reserves are close to 10% of GDP. The difference is exemplified by the fact that in December 2008 Estonia became one of the donor countries to the IMF lead rescue package for Latvia.

Estonia today is mainly influenced by developments in Finland, Russia, Sweden and Germany – the four main trade partners. The government recently greatly increased its spending on innovation. The prime minister from the Estonian Reform Party has stated its goal of bringing Estonian GDP per capita into the top 5 of the EU by 2022. However, the GDP of Estonia decreased by 1.4% in the 2nd quarter of 2008, over 3% in the 3rd quarter of 2008, and over 9% in the 4th quarter of 2008. The Estonian economy further contracted by 15.1% in the first quarter of 2009. Low domestic and foreign demand have depressed the economy's overall output. The Estonian economy's 33.7% industrial production drop was the sharpest decrease in industrial production in the entire European Union.