According to preliminary estimates from Statistics Estonia, the Estonian economy contracted by 1.7 percent in the second quarter compared to the same period last year. Reform Party member Maris Lauri told ERR that the economy has likely hit bottom, as indicated by another statistic from Statistics Estonia showing a 0.2 percent growth compared to the previous quarter.

"This suggests that the economy is no longer declining, with signs of slight improvement. This aligns with what the Estonian Institute of Economic Research stated yesterday, that conditions are no longer worsening and have even slightly improved for businesses compared to the first quarter," Lauri said.

She noted that it's difficult to predict the budget impact, as the Ministry of Finance's quarterly forecasts are not fully known.

"They have mentioned that the economy was expected to hit bottom around summer or spring-summer, followed by slow growth. This result seems to roughly align with the spring forecast of the Ministry of Finance. However, it's challenging to determine the exact accuracy and how it will affect the summer economic forecast, as this is a preliminary figure," Lauri added.

Lauri highlighted that private consumption remains weak and retail sales are declining, but businesses are more optimistic and are planning and making investments.

"It's logical that businesses recover first, which then trickles down to households, creating a sense that the situation is improving," the member of the Riigikogu said. "We also hear that conditions are slowly improving in Sweden and Finland, though not very strongly yet, but since we are dependent on them, these growth figures fit into the narrative we've been hearing from the Ministry of Finance and the Bank of Estonia this spring."

Lauri believes that while we may be at the bottom, rapid growth is unlikely because Estonia is heavily dependent on other countries. For growth, businesses need to make significant adjustments.

For the upcoming state budget, Lauri emphasized that it should be based on credible calculations rather than optimistic hopes, noting that the Ministry of Finance has generally followed this approach.

She also expressed that while optimism is necessary, it should not be overly reflected in the budget.

Regarding measures to prevent a debt spiral, Lauri said that the budget deficit burdens the economy, particularly due to loans that will eventually need to be repaid with interest. The interest rates and costs are higher the greater the debt burden.

"Our deficit is so large that overcoming it requires comprehensive measures. We need to raise taxes, cut spending, reconsider our actions and make smart expenditures. For instance, if we spend €100 million, that €100 million may not be spent in the smartest way," Lauri explained. "If we spent that €100 million differently, it might yield better results, greater benefits for society or the economy, which needs to be carefully thought through and considered."

Lauri added that while economic growth can help alleviate budgetary pressure, analysts have indicated that the contribution will not be substantial or quick, so all aspects need to be addressed. However, this is challenging because attention needs to be spread across many areas.

"When faced with a complex problem, it can't be solved easily. It means you need to do everything that is possible," Lauri concluded.

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