According to the forecasts of the European Commission, the growth of Estonia's real gross domestic product (GDP) should reach 9 percent this year, driven by private demand, government stimulus and buoyant exports.
Growth is expected to remain strong in 2022-2023 supported by a recovery in employment, sustained wage growth and dynamic foreign demand. Inflation is set to surge this year, fueled by the transitory increases in imported energy prices gradually passing through to other goods and services.
The government deficit is projected to narrow to 2.2 percent of GDP in 2023, with public debt remaining the lowest in the EU, the Commission said.
Employment is forecast to remain broadly stable throughout 2021 and expand gradually in 2022-2023. The unemployment rate is estimated to remain at 6.8 percent this year and drop steadily afterwards, to 5.2 percent in 2023.
Wage dynamics have been largely unaffected by the crisis, with repeated increases in 2020 and 2021, particularly in the government sector. Wage growth is expected to pick up in 2021 and accelerate thereafter, as the labor market becomes tighter.
The general government deficit peaked at 5.6 percent of GDP last year. In 2021, it is projected to narrow to 3.1 percent of GDP, followed by 2.5 percent in 2022 and 2.2 percent in 2023. Public debt is forecast to increase from 19 percent of GDP in 2020 to 21.4 percent in 2023, still the lowest ratio in the EU.
The EU economy is rebounding from the pandemic recession faster than expected. As vaccination campaigns progressed and restrictions started to be lifted, growth resumed in spring and continued unabated through summer, underpinned by the re-opening of the economy.
Despite mounting headwinds, the EU economy is projected to keep expanding over the forecast horizon, achieving a growth rate of 5 percent, 4.3 percent and 2.5 percent in 2021, 2022 and 2023 respectively. Growth rates for the euro area are projected to be identical to those for the EU in 2021 and 2022, and 2.4 percent in 2023. This outlook depends heavily on two factors: the evolution of the COVID-19 pandemic and the pace at which supply adjusts to the rapid turnaround in demand following the re-opening of the economy.
Editor: Kristjan Kallaste