The Executive Board of the International Monetary Fund (IMF) concluded its Article IV Consultation with Estonia on July 9, 2025. The Estonian authorities have agreed to publish the Staff Report from this consultation.
Estonia's economy is experiencing a mild recovery following a sharp contraction in 2023. Sequential growth turned positive in early 2024, driven by increased exports and investments. However, the introduction of a new motor vehicle tax led to an initial surge and subsequent drop in consumption.
Inflation remains elevated due to increased taxes and service prices. Headline inflation was at 4.6% in May 2025, partly influenced by the motor vehicle tax. GDP is projected to grow by only 0.5% in 2025 but could accelerate to 1.5% in 2026.
The IMF's assessment indicates that Estonia faces challenges despite signs of recovery. Higher input costs and trade barriers are expected to hinder stronger growth. The external position aligns with fundamental policies, but inflation risks remain high.
Fiscal policy for 2025 is deemed appropriate, but further consolidation will be necessary starting in 2026 to address rising defense spending needs and stabilize debt ratios. Financial stability concerns require vigilance, particularly regarding real estate developments and bank exposures.
To enhance productivity, Estonia should focus on addressing skill shortages, deepening capital markets, reducing regulatory burdens, and fostering innovation. Efforts towards energy security through renewable development are supported by IMF staff.
The next Article IV consultation with Estonia is recommended for completion within the standard annual cycle.