Estonia Economy Facts
Estonia’s liberal market economy is dominated by a service sector with advanced IT technology. With successful exports, the economy has recovered after repeated crises. The budget is in balance and central government debt is the lowest in the EU. However, security concerns in the region affect the economy and parts of the country suffer from unemployment and poverty.
The open Estonian economy is sensitive to changes in the outside world, especially with important trading partners. The Ukraine crisis in 2014 and the EU’s subsequent sanctions against the Moscow government (see Foreign Policy and Defense) curtailed Estonia’s agricultural exports to Russia and reduced Russian oil trade via Estonia. A deteriorating Russian economy also reduced the number of Russian tourists visiting Estonia. The weak Finnish economy also had a negative impact on Estonia.
- Countryaah.com: Major imports by Estonia, covering a full list of top products imported by the country and trade value for each product category.
But despite these problems, Estonia’s economy as a whole is stable. Unemployment is one third of the record level during the financial crisis of 2008-2010, when many Estonians emigrated to other EU countries to find work. Although many of them have returned to Estonia, some industries find it difficult to find qualified personnel, and labor costs increase more than productivity.
The service sector has grown sharply since independence in 1991 and now accounts for more than two-thirds of the country’s gross domestic product (GDP). Industry accounts for a quarter of GDP, while agriculture has declined in importance.
- Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including EST which represents the country of Estonia. Check findjobdescriptions to learn more about Estonia.
Dramatic economic development
Technological innovation is the hallmark of business. Estonia is one of Europe’s most digitized communities with more government services online than any other EU country. Companies can be started without paper forms, driving licenses can be renewed online, 98 percent of income declarations are submitted online and Estonia was the first in the world with voting via the Internet in parliamentary elections.
The transformation of the economy has been breathtaking. At the time of the outbreak of the Second World War in 1939, Estonia was an agricultural society, whose inhabitants had about the same standard of living as the Finns. During the Soviet era (1944–1991), Estonia was industrialized and became one of the richest Soviet republics, but it still fell far behind the neighboring countries in the Nordic countries due to the rigid state-controlled economic system.
The transition to market economy after the dissolution of the Soviet Union in 1991 led to an economic race (see Modern History). Exports fell, industry was knocked out, subsidies were abolished and free prices led to soaring inflation. Estonia adopted its own currency in 1992, tied it to the German soil and thus slowed inflation.
Trade barriers were abolished and foreign trade was increasingly directed to the west. Small and medium-sized companies were quickly privatized, the state telecommunications company long been owned by Telia and the largest banks by Swedbank and SEB. However, privatization of land, real estate, the energy sector and the railways has been problematic. The electricity market was deregulated in 2013.
High unemployment in the Northeast
Since the 1990s, Estonia has had a unit tax, known as flat tax, which has been gradually reduced to 20 percent for companies as well as private individuals. Reinvested company profits are tax-free and no payroll tax is levied on the lowest incomes. In 2017, the tax-free level was raised and high-income earners lost deductions in what is similar to progressive tax (see also Current policy).
While Tallinn was experiencing a boom during the economic transformation, the countryside has lost jobs, and young people have emigrated to cities or to other EU countries. Unemployment has been highest in the resorts surrounding the abandoned Soviet industrial complexes in northeastern Estonia.
But Estonia has succeeded better financially than any other former Soviet republic. A key has been the transformation of the business sector from large-scale to small and medium-sized companies, which have received investments primarily from Sweden and Finland and who have been able to export to Europe.
Record growth during the first decade of the 2000s was largely driven by loan-financed consumption that led to overheating and the financial crisis with shrinking GDP, hard cuts and record high unemployment.
After a strong recovery in the export sector, the economy turned upwards and Estonia could move to the euro in 2011. Currency exchange was followed by rising inflation, while exports continued to perform well. After 2011, growth slowed to one or a few percent annually. Estonia has the EU’s lowest government debt relative to GDP (9.5 percent in 2016). The informal sector of the economy is estimated at around one-seventh of GDP.
FACTS – FINANCE
GDP per person
US $ 22,928 (2018)
US $ 30 285 million (2018)
3.9 percent (2018)
Agriculture’s share of GDP
2.2 percent (2018)
Manufacturing industry’s share of GDP
13.4 percent (2018)
The service sector’s share of GDP
59.9 percent (2018)
2.5 percent (2019)
Government debt’s share of GDP
8.3 percent (2018)
New Social Democratic leader
The opposition party The Social Democrats elect 36-year-old Sven Mikser as new party leader. He aims to win the 2015 election.
Enrich Swedish owned factory in bankruptcy
The Swedish-owned textile factory Krenholm in Narva goes bankrupt after 150 years of operation, including as one of the Soviet Union’s largest industries.
Estonia qualifies for the euro
The EU finance ministers declare that the Estonian economy has met the requirements for membership in the euro zone.
Boost for the economy
The economy turns in the second quarter, GDP starts to grow again and unemployment falls.
Record high unemployment
In the first quarter, unemployment reaches 19.8 percent, the highest figure since independence in 1991.