Spring forecast: Estonia's economy to grow 2.3% in 2026
According to the Estonian Ministry of Finance forecast published on Thursday, growth will be driven by stronger private consumption—supported by changes to the income tax system—along with improving external demand that will stimulate corporate investment, and increased government spending.
The ministry projects real GDP to grow by 2.3% this year and 2.5% in 2027. In the subsequent years, growth is expected to slow down slightly.
Regarding inflation, the baseline scenario predicts a slowdown in price increases, with the Consumer Price Index (CPI) expected to rise by 4.0% this year and 2.7% next year. However, there is also a risk scenario that factors in the potential long-term impact of the conflict in the Middle East. Under those conditions, inflation could reach 5.0% this year and 3.2% next year.
During the presentation of the spring economic forecast on Thursday, Finance Minister Jürgen Ligi stated that security and uncertainty are currently the prevailing factors.
"The economic situation itself has been strong, and economic growth has accelerated—though prices have risen as well—but recent progress has fallen short of expectations," Ligi noted, citing the conflict in the Middle East as a primary cause.
Raoul Lättemäe, Head of the Fiscal Policy Department at the Ministry of Finance, added that while the global outlook did not seem overly pessimistic during the initial weeks of the Middle East crisis, concerns have since grown that the conflict may become prolonged.
"The level of uncertainty is comparable to the 1970s oil crisis," Lättemäe said.
The budget deficit of Estonia will widen to 4.3% of GDP this year, driven by rapidly increasing defense expenditures and the aforementioned income tax changes. The general government debt burden is projected to reach 39% of GDP by 2030 (up from 26.7% this year). Consequently, servicing this debt will become increasingly expensive for the Estonian state each year.
--
Editor: Karin Koppel, Argo Ideon
