OECD Economic Surveys: Estonia 2009

image of OECD Economic Surveys: Estonia 2009

Estonia grew faster than most emerging market economies during 2000-07, but it is now in a severe recession. This first edition of OECD's periodic review of Estonia's economy includes chapters covering getting back to a sustainable growth path, fiscal policy, labour market reform, housing policy, and the business environment.

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Assessment and recommendations

During 2000-07, the Estonian economy experienced one of the highest growth rates among emerging market economies and, until 2005, low inflation. However, in recent years, domestic demand was mainly driven by a housing investment boom, fuelled by high expected income growth and accommodated by large capital inflows and cheap credit, as well as tax incentives. Tightening loan standards in the wake of the severe international financial crisis, falling house prices and an abrupt turnaround of consumer confidence have put an end to expanding domestic demand, which has been shrinking since mid- 2008. Pro-cyclical fiscal policy is adding negative stimulus. Moreover, strong wage growth real appreciation weakened Estonia’s external competitiveness. 

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