The Commission said that Estonia's growth is set to be supported mainly by domestic demand. The labor market's continuing strength sustained consumer confidence in 2019 and should continue to do so this year.

"Nevertheless, as suggested by the downward trend in business sentiment, industrial production and exports are likely to stagnate in 2020. Investment growth is set to slow markedly after reaching a high point in the previous year. In 2021, GDP growth is forecast to show a slight rebound to 2.4 percent," the forecast says.

Inflation in Estonia slowed markedly to 2.3 percent in 2019 from 3.4 percent in 2018, largely due to lower energy prices. Inflation is forecast to remain slightly above 2 percent in 2020 and 2021. Relatively strong wage growth is set to push up prices of services while increases in consumption taxes are expected to have a smaller inflationary impact than in recent years. Energy prices in Estonia are expected to remain relatively stable.

The forecast says that, overall, the European economy remains on a path of steady and moderate growth. Over the next two years, annual GDP growth in the euro area is expected to settle at 1.2 percent, the same as in 2019. The outlook for 2020 and 2021 is unchanged since the autumn, as more positive developments are counterbalanced by negative events elsewhere.

In the EU as whole, growth is seen to decelerate somewhat to 1.4 percent in 2020 and 2021, a lower growth rate than the rate of 1.5 percent forecast in the autumn scenario.

The Commission observes that the economic expansion in the euro area is now the longest on record since the introduction of the euro but its pace has become rather subdued.

On the back of supportive monetary policy, slightly higher oil price assumptions and some upward momentum in underlying price pressures, euro area headline inflation has been revised slightly upwards, to 1.3 percent in 2020 and 1.4 percent in 2021.

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