Estonia - Economy

Economy

As a member of the European Union, Estonia is considered a high-income economy by the World Bank. The country is ranked 16th in the 2012 Index of Economic Freedom, with the freest economy in Eastern Europe and the former Soviet Union. Because of its rapid growth, Estonia has often been described as a Baltic Tiger. Beginning 1 January 2011, Estonia adopted the euro and became the 17th eurozone member state.

According to Eurostat newsrelease published at 21 October 2011, Estonia has the lowest ratio of government debt to GDP among EU countries as 6.7% at the end of 2010. The world media has lately started to describe Estonia as a Nordic country, emphasizing the economic, political and cultural differences between Estonia and its less successful Baltic neighbors.

A balanced budget, almost non-existent public debt, flat-rate income tax, free trade regime, competitive commercial banking sector, innovative e-Services and even mobile-based services are all hallmarks of Estonia's market economy.

Estonia is producing ca 75% of its consumed electricity. Over 85% of it generated with locally mined oil shale.. Alternative energy sources such as wood, peat, and biomass make up approximately 9% of primary energy production. Renewable wind energy part was ca 6% of total consumption in 2009. Estonia imports needed petroleum products from western Europe and Russia. Oil shale energy, telecommunications, textiles, chemical products, banking, services, food and fishing, timber, shipbuilding, electronics, and transportation are key sectors of the economy. The ice-free port of Muuga, near Tallinn, is a modern facility featuring good transshipment capability, a high-capacity grain elevator, chill/frozen storage, and brand-new oil tanker off-loading capabilities. The railroad serves as a conduit between the West, Russia, and other points to the East.

Estonia today is mainly influenced by developments in Finland, Sweden and Germany, its three largest trade partners. The government recently increased its spending on innovation by a considerable amount. The prime minister of Estonian Reform Party has aimed to raise Estonian GDP per capita to one of the EU's highest by 2022.

Because of the global economic recession that began in 2007, the GDP of Estonia decreased by 1.4% in the 2nd quarter of 2008, over 3% in the 3rd quarter of 2008, and over 9% in the 4th quarter of 2008. The Estonian government made a supplementary negative budget, which was passed by Riigikogu. The revenue of the budget was decreased for 2008 by EEK 6.1 billion and the expenditure by EEK 3.2 billion. In 2010, the economic situation stabilized and started a growth based on strong exports. In the fourth quarter of 2010, Estonian industrial output increased by 23% compared to the year before.

According to Eurostat data, Estonian PPS GDP per capita stood at 67% of the EU average in 2008. In March 2011, the average monthly gross salary in Estonia was 843€

However, there are vast disparities in GDP between different areas of Estonia; currently, over half of the country's GDP is created in Tallinn, the capital and largest city. In 2008, the GDP per capita of Tallinn stood at 172% of the Estonian average, which makes the per capital GDP of Tallinn as high as 115% of the European Union average, exceeding the average levels of other counties.

The unemployment rate is around 11.7%, which is above the EU average, while real GDP growth as of 2011 was 8.0%, five times the euro-zone average. As of 2012, Estonia remains the only euro member with a budget surplus, and with a national debt of only 6%, it is one of the least indebted countries in Europe.