Swedbank forecasts Estonia's real GDP to grow 2.0 percent in 2026 and 2.5 percent in 2027, with inflation easing to 3.4 percent this year and 2.7 percent next year.

Swedbank senior economist Liis Elmik: "We have revised this year's inflation forecast downward because recent monthly inflation figures have been more modest than expected, especially for food prices. Food has fallen quite significantly in recent months."

Elmik added that energy plays the biggest role in this year's inflation forecast.

"Everyone has likely noticed that motor fuels have become more expensive. After the start of the Middle East war, oil prices rose sharply. Gas prices did not react immediately at first, but they are now also climbing, and our forecast is based on futures prices for both oil and gas. Those show that gas prices this winter will be higher than in recent years," she said.

Rising real income and a stronger labor market are lifting Estonia's household spending, while investment is expected to pick up as confidence improves, said Swedbank Economic Outlook, published on August 25. The government continues to channel major resources into defense and infrastructure, but faces a significant challenge in improving public finances.

Recently updated GDP data show Estonia's economy contracted for only one year, in 2023, instead of the previously estimated three‑year period from 2022 to 2024. Preliminary figures indicate the economy grew 1.6 percent in the first half of 2026.

Domestic demand has been the main driver of growth this year in Estonia and is expected to remain a key engine next year. Private consumption has increased as household purchasing power has strengthened.

Government consumption and investment have also become important contributors to growth. Higher defense spending and infrastructure investment are adding momentum to domestic demand.

Private investment is expected to strengthen despite weak quarterly national accounts earlier this year. Lending activity has remained strong even as interest rates have edged higher. By June, Swedbank's mortgage loan portfolio growth had accelerated to about 10 percent year‑on‑year, while corporate lending expanded even more. Strong loan demand reflects improving confidence among households and businesses.

Swedbank expects economic growth among Estonia's trading partners to improve this year and next, boosting foreign demand.

"Finland is Estonia's largest trading partner; we export 15 percent of our goods and services there," said Swedbank economist Tõnu Mertsina. "In addition to being our biggest trading partner, Estonia's goods exports to Finland are also among the most broad‑based. So when demand in Finland improves, it gives our export sector more opportunities to sell there. In turn, that has a positive impact on Estonia's economy."

Competitiveness remains a challenge in Estonia. Labor costs continue to rise faster than productivity, keeping cost pressures high and limiting gains in competitiveness. Unit labor costs in manufacturing have increased more in Estonia than in many of its major trading partners.

Fiscal stimulus has played a major role in Estonia's recovery, especially this year, but has also widened the budget deficit. Fiscal policy is likely to remain broadly unchanged until the next parliamentary elections in March 2027, leaving more comprehensive decisions on public finances to the next government, Swedbank said.

SEB expects 2.5 percent growth this year

Estonia's economy is developing largely as expected and is on track to grow 2.5 percent in 2026, SEB bank said in its Nordic Outlook published August 25.

Households are benefiting from tax cuts that have lifted disposable incomes, while stronger investment and a brighter export outlook are expected to push growth close to 3 percent in 2027 and 2028. SEB noted that the high‑growth years before the pandemic appear to be over and that sustaining growth above 3 percent will require new drivers.

Consumers are leading the recovery. A major upward revision to first‑quarter GDP confirms the economy has entered a rebound. Growth so far has been driven mainly by household consumption, which had previously been held back by higher taxes, interest rates, inflation and weak confidence.

This year, households have instead gained from tax cuts that boosted disposable incomes, especially for higher earners, while inflation has fallen to about 2 percent. SEB expects consumption growth to moderate as these effects fade.

SEB economic analyst Mihkel Nestor says that unfortunately, stronger growth figures are not reflected in what people think about the economy — consumer confidence remains very low.

"There are likely many reasons why people do not believe in a brighter future: geopolitical tensions, large swings in commodity prices, painful memories of tax hikes and inflation, and more. One aspect that has not been discussed so far is the simple fact that Estonians have become accustomed to faster growth than today's economy can deliver. From 2010 to 2019, Estonia's GDP grew by nearly 4 percent a year on average. Those days are over and will likely never return," Nestor noted.

Inflation pressures have eased. The outlook remains sensitive to energy and food prices, but domestic price pressures have softened. Barring external shocks, inflation is expected to stay relatively stable at around 2.5 percent throughout the forecast period.

The export outlook has improved sharply, driven by stronger‑than‑expected growth among Estonia's main trading partners. The turnaround in Finland, Estonia's largest export market, is particularly notable, with growth returning sooner than expected. SEB said this should ease pressure on the manufacturing sector, which has faced difficult conditions for several years.

Investment is becoming a key growth driver and is expected to deliver the largest positive surprises in the coming years. Much of the momentum is coming from major public projects, including Rail Baltica and increased defense spending, but private‑sector investment is also strengthening.

The labor market remains stable. The employment rate for people aged 15–74 is close to 70 percent, leaving limited room for further gains. Wage growth is expected to ease somewhat but remain above 5 percent throughout the forecast period.

Economic issues are expected to dominate the debate ahead of the parliamentary elections in March 2027. Criticism of the large budget deficit and rapidly rising public debt has intensified.

SEB noted that while parties recognize the challenge, solutions are difficult: defense spending accounts for a large share of the increase, and further tax hikes would be politically hard after several previous increases. Some parties have pledged to abolish the unpopular motor vehicle tax or cut VAT on food, but delivering on such promises would be difficult under current fiscal constraints.

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