"While there was a lot of uncertainty this spring and it wasn't easy to forecast what impact from the war [in Ukraine] would reach our businesses, then as things currently stand, our economy and businesses have been much better adapters than we dared hope," said Minister of Finance Keit Pentus-Rosimannus (Reform).

"That should be said about various crises ⁠— they got through the COVID crisis well too, in which Estonian businesses were among the fastest and best to adapt," she added.

According to the forecast, domestic demand will remain very low this year and next, and will only begin to recover in the second half of 2023.

This April, the Ministry of Finance had forecast the Estonian economy to shrink by 1 percent this year and grow again by 1.2 percent next year.

"While were preparing this spring for an economic recession, what we're seeing now is that Estonia can expect a positive result for the year overall," the minister said. "Compared with the spring forecast, the latest forecast indicates a better budgetary position as well."

The Estonian economy will slow in the second half of 2022, and a recession can be expected in some sectors as well. Overall, however, the country's economic growth for the year on average will nonetheless remain positive, reaching 1 percent.

The biggest challenges facing the Estonian economy are energy prices and high price increases. Other economic impacts connected to Russia's war in Ukraine, meanwhile, have proven more modest than previously feared, and Estonian businesses have adapted better than expected to both sanctions and supply difficulties.

The labor market is nonetheless stronger than the ministry had forecast in spring due to the war. Wage growth is ongoing, but will nonetheless fall short of inflation this year, and Estonia's real wages won't recover to the 2019 level until 2025.

The Ministry of Finance is forecasting 11 percent wage growth this year and 7.4 percent wage growth in 2023. In other words, while the average monthly wage in Estonia stood at €1,548 last year, it is expected to reach €1,718 this year and €1,845 next year.

Inflation is increasing tax receipts, however the state's expenses are increasing as well due to inflation. The volume of budgetary expenditures approved for this year is keeping the growth of expenditures in check, however pressure is mounting to increase wages and operating expenditures.

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