Rasmus Kattai, an economist at the Bank of Estonia (Eesti Pank) told "Aktuaalne kaamera" that, based on preliminary estimates, the economic downturn has now ended.

He cautioned against expecting a rapid recovery as seen after some previous crises.

Kattai said: "When growth does start again, it will likely be quite slow. This also applies to our Scandinavian neighbors, where Estonia's economy is beginning to see more favorable conditions."

The Nordic countries are a key destination for Estonian exports and lower demand there has been a major driver in the economic downturn here.

SEB economic analyst Mihkel Nestor told "Aktuaalne kaamera" that the state of Estonia's economy is primarily influenced by the conditions of its export partners, which have gradually improved from a poor baseline, in recent months.

As a result, Estonia's economic decline has slowed, and a modest 0.2 percent increase in GDP can be seen when comparing the first and second quarters of this year.

Nestor said: "There isn't much to celebrate just yet. We have retail volumes still down compared with last year. It will also vital to see what happens in the fall."

Nestor identified another factor which is not likely to help with the short-term recovery.

"The recent news about tax hikes is certainly not something that would boost confidence; instead, it may make people even more cautious," he said.

Some business leaders however disagree with the above economists' relatively optimistic outlooks.

"Aktuaalne kaamera" visited Tarmeko, a company involved in wood and furniture manufacturing, which primarily markets its products in southern, western and central Europe.

One of their major buyers in the Netherlands declared bankruptcy last week.

Jaak Nigul, Tarmeko board member, said he sees no signs of improvement for anyone in the near future.

"Economic growth can only get off to a start when exporters start doing better, but a rosier situation for exporters unfortunately turns on factors like real estate investment, if we are talking specifically about the furniture sector. But with the current interest rates on loans, I fear that this won't happen anytime soon," Nigul said.

Mihkel Nestor at SEB said tax hikes' greatest impact is likely to will on private consumption, which may rise, exerting a further inflationary drive, as consumers try to "beat" the taxes coming in in 2025, and then fall later on.

"Ahead of the VAT hike, there might be a stockpiling of larger goods. People know that VAT will be higher next year, so it makes sense to buy items like a lawn tractor ahead of time," Nestor said.

All this can prolong the downturn or hamper recovery, he added.

"The claim that some tax increases will contribute to economic growth is either cynical or simply foolish," Nestor said.

As for the third quarter of this year, now nearly half-way through, Nestor said this is likely to show an on-year fall, though positive growth on-year may return in the final quarter of the year, Nestor predicted.

Estonia's economy contracted by 1.7 percent in the second quarter of this year, compared with the same period in 2023.

Of hopeful signs, there was an on-quarter growth, for the first time in nine quarters, or over two years.

With some exceptions for instance on medical items, VAT – more accurately a sales tax – will rise by two percentage points to 24 percent from 2025, having already risen by the same amount to 22 percent, at the start of this year.

The new Reform-SDE-Eesti 200 coalition is also planning additional taxation on lower earners for next year.

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