The recovery hinges on how long the pandemic and emergency situation last. Currently, the emergency situation is scheduled to last until May 1.

"The size of the economic downturn will primarily depend on how long restrictions will last in Estonia and elsewhere, and how companies weather the crisis. If the situation worsens, for example, in early August, the Estonian economy could shrink by 14 percent," the bank said.

Should the situation ease more quickly, the Estonian economy should recover fast, with strong growth predicted for 2021, the bank added.

Government packaged should be targeted

Government assistance should be focused on areas which help prevent long-term economic damage, the bank says.

"As of now, it is clear that restrictions resulting from the coronavirus pandemic are severely affecting business opportunities and, this year, the Estonian economy will shrink. The negative effects on the economy manifest in different ways. So far, there have been relatively few coronavirus sufferers in the country, and as a result, the direct impact of absenteeism from work has been small," the bank went on.

The bank also said rescue package measures should both be targeted and receive the consent of the populace.

"While additional government support for the economy is necessary in the current situation, decisions on how to spend budget money must continue to be prudent. Choosing steps to support economic recovery should avoid decisions which do not directly and effectively alleviate the plight of companies and individuals in difficulty, and which do not receive broad support in society," the bank said.

Impact varies accoring to sector

"The impact has been exacerbated by the quarantine requirements, as well as the imposition of restrictions on movement and transport, supply difficulties, falling export markets, reduced security of supply and the closure of borders, as well as the reduction or even termination of transport links," the bank said.

The overall impact of the crisis on business depends on the sector, the bank said.

The most rapid, and still the most striking impact, has been on various service establishments: Hotels, restaurants, event and tour operators, and the transport sector. However, other areas of activity have not been left unmolested, and difficulties are likely to increase with the imposition of the emergency situation on March 16.

Bank chief: Estonians are flexible

Madis Müller, head of the Bank of Estonia said: "The Estonian people and firms have repeatedly shown over the last 30 years that they are very flexible and smart in adapting to changing circumstances.

"Following a deep crisis a decade ago, the Estonian economy has recovered very quickly compared with other countries. The flexibility and economic adaptability of Estonian companies gives reason to hope the economic downturn sparked by coronavirus will also allow the country to recover quickly after the restrictions are lifted."

He continued: "The precise magnitude of final economic losses associated with the pandemic cannot be accurately predicted, but an approximate estimate of the magnitude of the recession in different scenarios can be provided. With lesser restrictions, economic recovery will be very fast, but if these last, there will be a significantly larger number of companies unable to survive the crisis, and recovery will be much more arduous."

A statement issued by the bank said: "The government's current decision is that the state of emergency will end in early May. At the same time, as the rest of the world improves, with a gradual recovery and normalization of business, the Estonian economy will shrink by about six percent this year. Loss of tax revenues and growth in social benefits will increase the general government deficit by nearly €1 billion, or more than three percent of GDP, in this scenario. This estimate does not include the impact of government-planned aid measures on the state budget."

However, in the light of recent events, the end of the state of emergency scheduled for early May may delay the recession, which is expected to result in more than six per cent of recession.

"The weekly worsening of the emergency situation in Estonia and the delay in the recovery of export markets will be exacerbated by about half a percent of the economic downturn in 2020," the central bank predicts.

In the light of the forthcoming economic downturn, it is clear that the financial position of the Estonian government will deteriorate significantly as a result of the growing debt burden taken in the measures aimed at alleviating the effects of the crisis.

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