This Survey is published on the responsibility of the Economic and Development Review Committee (EDRC) of the OECD, which is charged with the examination of the economic situation of member countries.The economic situation and policies of Estonia were reviewed by the Committee on 5 November 2014. The draft report was then revised in the light of the discussions and given final approval as the agreed report of the whole Committee on 15 December 2014.The Secretariat’s draft report was prepared for the Committee by Andrés Fuentes Hutfilter and Andreas Kappeler under the supervision of Andreas Wörgötter. Research assistance was provided by Seung-Hee Koh and Eun Jung Kim. Heloise Wickramanayake formatted and produced the layout of the document.The previous Survey of Estonia was issued in October 2012.

Estonia experienced strong growth of loan-financed domestic demand after EU accession in 2004, followed by the burst of the real estate bubble and the international financial crisis. The economy recovered quickly. Regulatory settings are generally favourable to sustain growth and the government is initiating further substantial structural reforms. The fiscal position is strong and macroprudential policies have been strengthened. However, in recent years economic growth has slowed, in part due to weak external demand. Real GDP per capita is still lower than in the boom peak of 2007. The productivity gap with respect to high-income countries is currently diminishing only slowly. Skill mismatches contribute to structural unemployment and emigration is reducing labour supply. At unchanged policies higher income growth will tend to raise greenhouse gas emissions, which are among the highest in the OECD in relation to GDP. Key challenges for Estonia are therefore to raise productivity growth, including by making the most of human capital, while containing greenhouse gas emissions.

The Estonian economy experienced a sharp contraction of output in the context of the global financial crisis in 2008 and 2009, deepened by a domestic credit-based boom-bust cycle in the construction sector and reinforced by procyclical fiscal policy (Economic Surveys of Estonia 2011, 2012). Real GDP per capita and household incomes fell markedly (Figure 1). In the following years, the economy recovered quickly, led by exports. The banks, mostly owned by Scandinavian financial groups little affected by the global financial crisis, cleaned up their balance sheets rapidly which helped restore access to credit. Private sector indebtedness fell to sustainable levels. A very strong fiscal position also helped restore financial market confidence. However, economic growth started slowing in 2012 mainly due to weaker exports. Real per capita GDP and household incomes remain below the peak of the preceding boom. Moreover, poor households have barely benefited from the postcrisis recovery since 2010.

This annex reviews action taken on recommendations from previous Surveys. They cover the following areas: fiscal policy, labour market policies, education policies, health policies, public sector efficiency, globalisation, financial sector and green growth. Each recommendation is followed by a note of actions taken since the October 2012 Survey. Recommendations that are new in this Survey are listed in the relevant chapters.