Estonia weathered the pandemic shock better than its peers in 2020, with a contraction of GDP of 2.7%. However, the recent and acute resurgence in virus cases entailed new lockdown measures that have damped economic activity. GDP is projected to grow by 2.9% in 2021 and 5% in 2022, driven mainly by private consumption and a gradual resumption of private investment. Unemployment is expected to decrease gradually, but will remain above its pre-crisis level, while poverty is expected to increase from an already high level. Downside risks arise from the pandemic path, notably virus mutations, but the vaccination programme will make all adults eligible for vaccination by the summer.
The various employment support measures put in place during the first wave of the pandemic have been reinstated and will cushion the hit to the labour market from the second wave. Estonia entered the crisis with a large fiscal space. As such, fiscal policy should play a more active role to strengthen social safety nets and support those left behind by the pandemic. Increasing public investment should contribute to the decarbonisation of Estonia.