The Estonian economy went through an extreme cycle of record-breaking growth up to 2007 and a precipitous decline in 2008 and 2009. Boosted by foreign demand and increased competitiveness, the economy has bottomed out, and is now generating some growth again. Unemployment is still high but positive inflation has already returned after a short interval of mild deflation. Unsustainable current account deficits have been corrected, although this improvement has not yet been tested by a solid recovery of domestic demand. This Survey focuses on the legacy of this major recession and the challenges going forward in the form of: the risk of a steep increase in structural unemployment; a high level of non-performing loans; the macroeconomic policy challenge of avoiding another boom-bust cycle in the course of euro adoption; securing the efficient use of public resources; and making the most out of globalisation. In order to keep the economy on a sustainable growth path in the future, work should be carried out towards developing new macro-prudential tools tailored to Estonia’s small open economy so as to better deal with a situation of excessive credit growth.