IT and telecoms companies felt the effects of the slump the hardest for the second quarter in a row, data from Statistics Estonia shows.

The industrial sector is also suffering. Rapid price and wage increases have made Estonian exports more expensive while the economic situation elsewhere is fragile.

In the first quarter, exports fell by more than 10 percent and Estonians are also spending less money. The decline has been felt in the last four quarters, pushing the country into recession.

But, while many important economic indicators are in the red, unemployment has not risen much.

"For me, as an economist, if the labor market is balanced, i.e. unemployment is low and employment is very high, then there is no very serious economic crisis. It shows that, on the one hand, people have adapted to the rapid rise in prices and, on the other hand, businesses have adapted to the situation and have not let people go," explained Eamets, professor of economics at the University of Tartu.

LHV Bank analyst Kristo Aab said the worse may be over and the rest of the year may improve. But if there are unexpected surprises, companies could start to make redundancies.

"If we see some kind of economic downturn in Scandinavia - in Finland, in Sweden - in the next few months or quarters, then our industry is so tied up with these countries that, because we export a lot of our products there, at some point it will no longer make sense to keep these people on half-time, but we will have to start saving there as well.," he said.

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