Estonia’s economic recovery is projected to continue, despite geopolitical headwinds and high uncertainty from energy shocks, supply chain disruptions and weaker exports. A gradual fiscal consolidation combining greater spending efficiency and tax reforms would help stabilise debt and fund future spending needs related to population ageing, health and defence, together with additional efforts to manage the energy transition, adapt to climate change and make the most of AI and digital technologies, according to the latest OECD Economic Survey of Estonia.
Growth has resumed and the recovery is expected to accelerate from 0.5% in 2025 to 1.8% in 2026 and 2.7% in 2027, supported by fiscal easing and stronger investment. While higher energy prices will add to inflationary pressures, inflation is still projected to decline from 4.8% in 2025 to 4.1% in 2026 and 2.6% in 2027.
“With a strong business climate, a resilient labour market and a solid fiscal framework, Estonia’s economy remains fundamentally sound,” OECD Chief Economist Stefano Scarpetta said, presenting the Survey in Tallinn alongside Estonia’s Minister of Finance Jürgen Ligi. “At the same time, strengthening public finances will be important to address rising spending needs linked to defence, ageing, health and the digital and green transitions.”
A gradual medium-term fiscal consolidation starting in 2027 and a long-term budgetary strategy, supported by a review of the tax system, would help stabilise debt and address future spending pressures. The Survey also recommends improving the efficiency and targeting of family benefits, alongside reforms to strengthen the long-term sustainability of the pension and health systems.
Estonia is a digital frontrunner, with AI adoption high in knowledge-intensive sectors, but lagging in more traditional parts of the economy. Estonia should focus on expanding AI adoption in traditional sectors, such as manufacturing and logistics, and upskilling and reskilling of workers, with a focus on applied AI skills.
Despite significant progress in reducing greenhouse gas emissions since 2018, Estonia remains one of the most carbon-intensive economies in the OECD. Swift adoption of the pending Climate Law which would allocate clear responsibilities for implementation, together with faster investment in grid resilience, energy storage and energy security, would support the transition to net-zero and boost resilience.
