"'Stagnation' is a good word to describe the current state of Estonia's economy," Nestor said on Tuesday's "Esimene stuudio". "Because even though the indicators show growth, the pace is not what we have been used to in years past or what we'd be satisfied with today."

The more the economy matures, the harder it is to achieve annual economic growth of 5 percent or more, he added.

"We are adjusting to slower growth, because that is simply how it is going to be. If you think about where we were 10 years ago, this maturity of the economy also means that, being such a wealthy country, we are already a welfare society compared to most of the world. Our businesses are doing very well, people here are affluent, and companies are rich. The closer you get to the ceiling, the slower the growth becomes. To dream that we will grow 5 percent per year under these circumstances — and maybe some years we will — but on the whole, if we can average 2.5 percent growth per year, that would be excellent," the economist said.

When asked when Estonia's economy would return to its pre-COVID level from 2019, Nestor replied that we have been back at that level for quite some time already.

For example, average wages in Estonia have grown by nearly 50 percent compared to that time, and even when accounting for inflation over the same period (47 percent), "there's still something left over."

Looking at SEB customer account statistics, it is clear that deposits are growing at a relatively uniform percentage rate across customers with varying levels of wealth.

But the growth in savings indicates that people do have money, yet are hesitant to spend, because the overall environment is still uncertain, Nestor pointed out.

"I do not know whether it is good or bad, but the impact of politics on the Estonian economy is relatively marginal. That does not mean there is no effect, it still sets direction. If we are talking about tax policy, for example, value-added tax has increased over the past two years, clearly that affects consumption," said Nestor.

There has been debate and campaigning around the idea of reducing VAT on staple food items. Nestor said he understands the arguments on both sides of the issue, but believes there are likely better ways to support low-income individuals.

"Historically, countries have experimented with this, Poland even had a zero percent VAT rate on food at one point. In an environment where food prices are rising very rapidly, the effect was momentary. /.../ One month food is cheaper, six months go by, food prices on the global market continue to rise, and the effect completely disappears," said Nestor.

"I cannot say one choice or another would be wrong, but without question, this would carry a very high price tag for the Estonian state budget. And that money has to come from somewhere. Considering that the public is fed up with tax hikes, I do not see any government raising some other tax just to make food a little cheaper for a short while," he added.

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