Author/Editor:

International Monetary Fund. European Dept.

Publication Date:

May 24, 2018

Electronic Access:

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Summary:

Estonia’s economy is performing well, underpinned by prudent economic management, ongoing structural reforms, and strong institutions. Real economic activity has surprised on the upside, bringing output above potential, and the fiscal position remains strong. Inflation has increased, but is expected to decelerate over 2018. The labor market has been tightening, and unemployment is low. Despite continued strong wage increases, rising export prices have eased pressure on corporate profitability. Over the medium term, low productivity and adverse demographics would weigh on long-term growth prospects. The authorities should take advantage of the current favorable conditions to accelerate structural reforms for sustained growth and income convergence, rather than boost demand through the expansionary policies embedded in the 2018 budget.