page_title: Economy of Estonia
section_title: The 2008 financial crisis, response and recovery
hierarchical_section_title: Economy of Estonia / History / The 2008 financial crisis, response and recovery
caption_attribution_description: English: Real GDP growth in Estonia, 2002-2012
context_page_description: The economy of Estonia is an advanced economy and the country is a member of the European Union and of the eurozone. Estonia's economy is heavily influenced by developments in the Finnish and Swedish economies.
context_section_description: The financial crisis of 2007–2008 has had a deep effect on the Estonian economy, primarily as a result of an investment and consumption slump that followed the burst of the real estate market bubble that had been building up during the preceding years.
  After a long period of very high growth of GDP, the GDP of Estonia decreased. In the first quarter 2008, GDP grew only 0.1%, and then decreased: negative growth was −1.4% in the 2nd quarter, a little over −3% (on a year-to-year basis) in the 3rd quarter, and −9.4% in the 4th quarter of that year.
  The government made a supplementary negative budget, which was passed by the Riigikogu. The revenue of the budget was decreased for 2008 by EEK 6.1 billion and the expenditure by EEK 3.2 billion. A current account-deficit was extant, but began to shrink in the last months of 2008, and had been expected to continue to do so in the near future.
  In 2009, the Estonian economy further contracted by 15.1% in the first quarter. Low domestic and foreign demand had depressed the economy's overall output. The Estonian economy's 33.7% industrial production drop was the sharpest decrease in industrial production in the entire European Union. That year, Estonia was one of the five worst-performing economies in the world in terms of annual GDP growth rate, and had one of the greatest rates of unemployment in the EU, which rose from 3.9% in May 2008 to 15.6% in May 2009.
  Some international experts and journalists, who like to view the three Baltic states as a single economic identity, had failed to notice that Estonia has constantly performed better than Latvia and Lithuania on many fundamental indicators. The current-account deficit and inflation was lower than in Latvia; GDP per capita was higher than in Latvia and Lithuania; Estonia's public debt was a low 3.8% of GDP, and government reserves were close to 10% of GDP. The difference is exemplified by the fact, that in December 2008, Estonia became one of the donor countries to the IMF lead rescue package for Latvia.
  In response to the crisis, the Ansip government opted for fiscal consolidation and retrenchment by maintaining fiscal discipline and a balanced budget in combination with austerity packages: The government increased taxes, and reduced public spending by slashing expenditures and public salaries across the board.
  In July 2009, the value-added tax was increased from 18% to 20%. The recorded budget deficit for 2009 was just 1.7% of GDP.
  The result was, that Estonia was one of only five EU countries in 2009 that had met the Maastricht criteria for debt and deficit, and had the third-lowest deficit after Luxembourg and Sweden. Neither did Estonia need to ask help from the IMF. Despite the third-largest drop in GDP, the country had the lowest budget deficit and the lowest public debt among Central and Eastern European countries.
  In 2009, the Estonian economy began to rebound, and economic growth resumed in the second half of 2010. The country's unemployment rate has since dropped significantly to pre-recession levels. To top it off, Estonia was granted permission in 2010 to join the eurozone in 2011.
caption: Real GDP growth in Estonia, 2002–2012.
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