Macroeconomic analysis reveals fiscal expansion supports growth amid rising energy costs and inflation, indicating structural headwinds threaten long-term income convergence.
A sizable fiscal expansion has lifted Estonia’s growth, but higher energy prices are weighing on the recovery and raising inflation risks. These cyclical pressures are compounded by structural headwinds, including slowing productivity growth, rising unit labor costs, and weakening competitiveness, which have slowed income convergence.
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International Monetary Fund. European Dept. (2026) studied this question.
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