Eamets: Bigbank Forecasts Estonia's Economic Growth at 2.3% This Year

Raul Eamets, chief economist at Bigbank, published the bank's economic forecast for the current year today, according to which Estonia's GDP will grow by 2.3%, the consumer price index will rise by 3.2%, the unemployment rate will be 7.1% and the average gross wage will be 2230 euros. Eamets predicts that the 6-month euribor rate, which underlies most Estonian home loans, will be 2.15% by the end of the year.

"The economy will start growing, but it will do so in smaller volumes than we would expect, because the external environment is recovering with difficulty. Lithuania and Sweden are doing rather well, Latvia's situation is also rather good, but the prospects in Finland and Germany are not as good," Eamets described his overall assessment of the economic perspectives for Estonia and its neighboring countries and important trading partners.

According to Raul Eamets, the abolition of the tax wedge will bring additional money into the Estonian economy, but at the same time it creates a large hole in the state budget. "Essentially, we are borrowing at large scale as a state in order to be able to pay current expenses," he noted. Wage growth is being driven by the public sector – the percentage of labor cost growth provided for in the state budget is as much as 9.4%, and wage increases have been promised to both teachers and firefighters.

According to Eamets, inflation will be lower than in 2025, because last summer's VAT increase will fall out of the formula in the second half of this year. Additionally, Statistics Estonia has promised to start monitoring changes in campaign prices in stores. This should provide a more realistic picture of price increases. He does not predict major tax changes for the current year, but it is still too early to assess the impact of the various excise duty changes coming into effect in late spring on cross-border trade. "Over the summer, we will see whether and to what extent some taxes will start moving across the border to Latvia or not."

According to Eamets' assessment, base interest rate levels will most likely not change this year: "Euribor will also be in the range of 2.1-2.2% at the end of the year." With modest economic growth and growth in personal incomes, the real estate market and the construction market will revive, but a large part of this boom will go into work related to Rail Baltic. Retail trade and domestic tourism could also get an additional boost, according to Bigbank's chief economist, from the fact that people's real incomes will grow.