Republic of Estonia: 2025 Article IV Consultation-Press Release; and Staff Report

International Monetary Fund

No 2025/181, IMF Staff Country Reports from International Monetary Fund

Abstract: The 2025 Article IV Consultation highlights that after a long downturn, the Estonian economy is experiencing a gradual recovery, but higher input costs, a legacy of earlier shocks, along with global policy uncertainty and trade barriers are preventing a more vigorous rebound. Wages growing faster than productivity and permanent increases in input costs, a legacy of previous shocks, are hindering price-sensitive activities, while production with higher technological content is constrained by lack of skilled labor and limited access to capital markets. A mild recovery is expected to continue, supported by a looser policy mix. Moderate growth in the euro area and other export markets is seen spilling over to domestic demand, encouraging firms to revisit investment and, to some extent, hiring plans. Decisive action is needed to enhance productivity. Against the backdrop of declining allocative efficiency and weak business dynamism, policies should focus on addressing skill shortages, deepening capital markets, reducing regulatory burden, and fostering innovation. Ensuring energy security is also critical.

Keywords: FAD mission; currency of Estonia; defense spending needs; executive board assessment; headline inflation; Personal income tax; Fiscal stance; Financial derivatives; Global; Baltics (search for similar items in EconPapers)
Pages: 71
Date: 2025-07-14
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