In Q4 2025, Estonia’s real GDP increased by 1% y/y and remained unchanged over the quarter (seasonally and working day adjusted – swda), according to the flash estimate from Statistics Estonia.
The Estonian economy emerged from the downturn last year, with GDP growth reaching 0.5% in 2025 (swda), indicating a modest recovery that was close to our expectations (0.6%). Growth should accelerate in 2026 on government investment and stronger private consumption. We forecast Estonian economy to grow by 2.3% this and by 2.6% next year.
Private consumption remained subdued last year. Swedbank card payments statistics indicate that consumer spending was still weak toward the end of the year. Retail trade, which accounts for nearly one-third of private consumption, showed only marginal expansion from a low base, with growth of around 2% in 2025.
The personal income tax reform and lower inflation will boost households’ purchasing power and support consumption this year. Consumer confidence, a key prerequisite for consumption, improved in the second half of 2025, supported by expectations of lower inflation and taxes.
The government will swiftly boost public investments, especially in defence and infrastructure. This will be an additional stimulus to the economy in 2026.
Export growth slowed at the end of the year, but strengthening foreign demand is expected to improve export opportunities in 2026. The export sector will have to improve its competitiveness to take full advantage of foreign demand. However, uncertainties and risks in the external environment persist.
