"For now, all indicators suggest we have come through the bottom and are moving upward, but the pace is very moderate. There is no rapid growth in sight, yet there are clear signs that growth has arrived," Lepp said on the "Esimene stuudio" evening talk show.

Consumer prices continue to rise despite a drop in raw material prices last year. According to Lepp, Estonian consumers are not seeing their shopping baskets become cheaper primarily because high energy prices have also affected producers.

"In our food basket — in other words, the inflation basket we use to measure inflation — there are many goods and services, with food playing a significant role. Energy is another. In both cases, we must acknowledge that energy prices have increased and the same unfortunately applies to food, which must be frozen and heated before it reaches stores. Energy prices have likely had an impact there as well. It is a complicated situation in which meeting basic needs has become increasingly expensive. There is no other reason — energy has become more expensive. Wages have also risen, which may provide some relief," Lepp said.

At the same time, Lepp noted that consumer spending data show considerable stagnation, which does not align with rising prices.

"One conclusion is that people are buying different goods, but another — harder to measure in monetary terms — is that purchases are increasingly being made in online stores, with some turnover shifting abroad. That is another reality affecting local merchants," he said.

Lepp added that it is still too early to see whether abolishing the so-called tax hump has left people with more money in hand, as only one payday has passed this year. In addition, January electricity bills were significantly higher than usual.

"The first month does not yet show the effect, but over the course of the year it will certainly have an impact. In terms of retail turnover, the amount now remaining in people's pockets does create the opportunity to consume somewhat more. However, it is not distributed equally. Some groups will benefit more and others less, so it is still too early to say. It will have an effect this year, but I do not believe it will be very large or decisive," Lepp explained.

According to the Swedbank Eesti CEO, increased consumption would certainly stimulate the economy and could also provide relief for employers.

"One aspect is that some people will have more money left over and that will certainly go into consumption. That always stimulates the economy. But it can also be viewed the other way around. We have had years of very rapid wage growth and perhaps this could provide some relief for employers. With the government leaving more money in people's hands, wage growth in some groups could slow. This is a major competitiveness issue and wage growth is known to reignite inflation. It may have multiple effects, but perhaps it could help set a more reasonable limit on rapid wage increases," Lepp said.

At present, Lepp said Estonia's economic growth has been held back by weak demand in nearby markets, though there are several reasons behind the slowdown.

"The Estonian economy has had certain competitive advantages and one reason we have managed to grow is strong demand for our products in neighboring countries. Unfortunately, that has fallen away. Both the Scandinavian and German markets have experienced relatively weak growth," Lepp said, adding that early signs of recovery are emerging in both.

"In Scandinavia there are initial signs of recovery and in Germany as well, as the government there is also stimulating the economy through large-scale investments. There is hope. Another advantage we have had is reasonable energy prices, which have recently become a challenge. Gas, oil and gasoline prices are the same for everyone, but electricity prices have risen somewhat faster than elsewhere. Wages have also been one of our advantages, but these advantages have disappeared at the same time as demand has declined. All of this together has led to an economy that has been stagnant or in slight decline for several years," Lepp said.

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