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Following the years 2020–2023, there was a faint hope that 2024 might bring somewhat less turbulence and fewer challenges. However, looking back at everything that has happened, it is clear that significant relief for our volatile world has yet to arrive. Both the global and Estonian economic and political situations have shown that the desired positive changes take time, and achieving economic growth and security will require continued significant efforts in the coming years.
Over the past year, there have been a few positive trends in our own economy, such as a slight revival in the export of Estonian industry, which has offered hope that partial economic growth in the coming years is not just a dream. At the same time, domestic demand and the purchasing power of our population remain weak. Upcoming government tax increases will erode the opportunity for consumers' purchasing power to grow, which had briefly improved due to lower interest payments on loans. As a result of these tax hikes, we, as a small nation, find ourselves in a staggering situation where many goods on our store shelves are the most expensive in the European Union, yet people's purchasing power does not fully keep pace with these price surges. Consequently, we are likely to see the continued rise of e-commerce in the coming years, with money flowing out of Estonia at the expense of local retail.
What have been the main factors influencing and hindering our economic growth in 2024? It’s impossible to highlight the primary impact of just one or two factors; instead, we must discuss the interplay of several elements. These include the economic challenges and weak growth of Estonia's main trading partners, Finland and Sweden; the geopolitical situation creating continued uncertainty among foreign investors about investing in our region; the loss of essential raw materials from Russia and Belarus for industrial companies, resulting in increased costs; wage increases that have reduced Estonia's competitiveness; and much more. Yes, the latest state budget indicates that public sector spending will rise next year, but unfortunately, these funds will not significantly support local economic growth. Instead, a large portion of the expenditures will be directed, understandably, toward national defense, leaving the task of stimulating economic growth primarily in the hands of entrepreneurs and the private sector.
Certainly, the private sector and entrepreneurs are prepared to continue their contributions, but in return, they expect the state to reduce, or at least not add to, bureaucracy that hampers competitiveness and economic growth.
In summary, Estonia's economy has the potential for recovery and growth in the coming years. However, achieving this and the pace of its achievement depend on more business-friendly governance, the economic developments of key trading partners Finland and Sweden, geopolitical factors, and the ingenuity of our entrepreneurs to leverage innovation and improve productivity. The welfare of Estonia as a country and its people will grow as wages increase, but wages can only be sustainably raised by those companies that boost productivity through investments and innovation, expanding into broader export markets.
Let us act wisely and innovatively, working together for economic growth and a better tomorrow, and let us stick together – we're not that many!
