Senior Economist of OP Bank: Estonia's economy will show stronger growth only next year
Estonia’s economy will grow slowly this year, with stronger growth expected next year, according to OP Bank’s economic outlook. Investments, rising consumption, and increased production are expected to drive the recovery, while inflation is stabilizing.
Estonia has long experienced negative economic growth, but recent data indicates that the economy is now gradually recovering. However, growth this year remains modest, partly due to tariffs introduced in the spring, which have created uncertainty and slowed exports. Faster growth is expected next year.
“Our forecast shows that Estonia’s economy will begin to pick up by the end of this year, but especially next year. This will be supported by stabilizing inflation and new investments. While private consumption in Estonia remains subdued and consumer confidence is low due to tax increases, household incomes are rising, creating conditions for stronger consumption. This, in turn, will have a positive effect on the economy,” explained OP Bank’s Senior Economist Joona Widgren.
Other Baltic countries have also shown only slow growth this year. However, the bank considers the economic situation strongest in Lithuania, where GDP is forecast to grow by 2.5% this year. In Estonia and Latvia, GDP growth is expected to reach only 1%.
“Although Lithuania’s economy is currently in better shape than in the other Baltic states, both Estonia and Latvia are also moving in a positive direction – for example, production is recovering again in both countries. Trade is also supported by new customs agreements between the European Union and the United States, as well as by easing global trade tensions. The labor market in the Baltics is relatively strong too, remaining fairly stable in recent years and at relatively low unemployment levels, comparable to other European countries,” noted Widgren, adding that unemployment is currently the highest in Lithuania and the lowest in Latvia.
Inflation is stabilizing in all three Baltic states, though it remains higher than in most European countries. Estonia currently has the highest inflation, which has risen above 5% over the past year. However, the analysis shows that by the year after next, inflation is expected to fall back to the normal level of around 2%, further supporting economic growth.