Estonia’s central bank forecasts 2.4% economic growth in 2027–2028 — ERR News
Estonia’s central bank, Eesti Pank, forecasts that the country’s economy will grow by 2.6% in 2026 and by 2.4% in 2027 and 2028. At the same time, the regulator warned against a rapid increase in public debt and debt servicing costs, ERR News reports.
What supports the economic recovery
According to Eesti Pank, Estonia’s economy is recovering after a downturn. Growth is being supported by the uniform income tax exemption introduced this year, which has increased household income and private consumption, as well as higher government spending financed through increased borrowing.
Improving conditions in external markets are supporting the export-oriented industrial sector. The central bank noted that the diversification of export markets in recent years is already yielding results. Foreign trade is also being affected by growing global investment related to artificial intelligence.
The regulator stressed that further growth will increasingly depend on labour productivity. Part of the current recovery has been ensured by bringing back into use production capacity that stood idle during the downturn. Industrial capacity utilisation has already returned to the level of years of stable growth, so further development requires investment, broader use of technology and workers with the appropriate skills.
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Deficit and debt servicing costs
Eesti Pank named the significant state budget deficit as one of the key problems. If the government does not take measures to reduce it, the deficit will exceed €2.2 billion in the coming years. It turned out to be somewhat larger than previous forecasts due to slower-than-expected growth in wages and private consumption, and consequently weaker growth in tax revenues.
According to the forecast, government expenditure on interest payments on debt will reach €472 million in 2028 and will continue to grow. The central bank warned that a high deficit and rapid debt accumulation weaken the sustainability of public finances and limit the government’s ability to respond to future economic downturns.
Eesti Pank recommends adhering to domestic fiscal rules: reducing the deficit by 0.5% of GDP annually. According to the regulator, this would help keep public debt at around 30% of GDP in the long term. The forecast also envisages inflation falling from 3.1% in 2026 to 2.1% in 2028, while the unemployment rate may decline from 6.4% to 5.7%.
