Ministry: Estonian economy to start growing again in late 2024

TALLINN – According to the summer economic and financial forecasts published by the Ministry of Finance on Tuesday, the Estonian economy will return to growth at the end of this year.

However, keeping the deficit within the limit of 3 percent will require further measures.

The ministry's forecast includes a baseline scenario and a scenario with the financing sources listed in the coalition agreement, the details of which will become clear in the course of the preparation of the 2025 state budget, and which are indispensable to put the budget on course for balance and to comply with EU requirements, the ministry said.

According to the baseline scenario, the economy is expected to return to growth by the end of 2024, driven by the recovery of export markets, an increase in private consumption and a revival of investments. This outlook is supported by the gradual improvement in the confidence of both businesses and consumers from the previous lows in Estonia and neighboring countries alike.

The income and expenditure measures set forth in the coalition agreement to improve the budget situation will impact Estonia's economic development prospects. While budget cuts and tax changes will somewhat restrain economic growth in the short term, they will build confidence in the country's financial and economic environment in the long term, the ministry believes.

As a result of the proposed measures, the economy will grow by 2.1 percent in 2025 and 2.7 percent in 2026. The exact volume and details of the measures will be announced by the end of September, when the government has finalized the draft state budget for 2025 and the state budget strategy for 2025-2028.

"The growth forecast rebuts the allegations that the government's policies are destroying the economy and sending prices soaring. There is no alternative to curtailing borrowing by the government and replacing it with spending cuts and tax rises. A reduction in the fiscal stimulus is required both by the resumption of economic growth and by the fiscal rules," Finance Minister Jürgen Ligi said.

This year's budget deficit is projected to remain at the level of 3 percent set forth in the supplementary budget for 2024. Next year, deficit will increase to 4.4 percent of gross domestic product, not counting the measures of the coalition deal, but the government's goal is not to increase the deficit compared to this year. The general government's debt burden will grow to 23.3 percent of GDP this year as a result of the budget deficit and would reach 33.2 percent by 2028 if additional measures were not implemented.