Estonia Country Risk Report Q4 2018
We believe that growth outperformance relative to the rest of the eurozone is highly likely over the coming years, given the stable domestic political situation and open business environment. Estonia can continue to transition to a higher value-added production and services-based growth model.
Estonia will remain among the most structurally stable countries across emerging markets, in part due to its strong fiscal position. Having fully converged to all major multilateral European institutions, the country will continue to benefit from a robust policy anchor and a high degree of institutional capacity in the long run.
The country's often fractious relationship with neighbouring Russia, undermined by domestic divisions between ethnic Estonians and ethnic Russians, poses the key risk to stability.
Estonia faces a major demographic problem. Declining fertility rates, increasing life expectancies, and continuous and extensive emigration have led to an ageing and shrinking population. In the long run, this will create a host of economic, political and social challenges.
The UK's exit from the EU presents both upside and downside risks to the Estonian economy. On the one hand, it creates opportunities in the form of returning migrants entering the local labour forces. On the other hand, it reduces remittance inflows and could potentially undermine the country's security situation. Besides this, the actions of Russia continue to represent the biggest external threat to Estonia.
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