As Estonia is a small open economy and rapid credit expansion had boosted domestic consumption, then it is not surprising that the country was hit hard by the financial crisis. Significant export markets disappeared and the domestic housing bubble deflated. The GDP shrank by 3.6 percent in 2008 and 13.9 percent in 2009, making it the third-deepest recession in the EU. The unemployment rate reached almost 20 percent in spring of 2010. However, there has been a quick recovery of economic growth and rapid decline in unemployment. The GDP grew 3.1 percent in 2010 and 7.6 percent in 2011. The unemployment rate declined to 12.5 percent in 2011. We expect a modest GDP growth of 2-3 percent in 2012 and 2013 because of uncertainty in the key export markets. Unemployment is forecasted to decline to 10.5 percent in 2012 and to 9 percent in 2013.
Even though Estonia is a small economy, its economic performance and policy reforms over the last two decades present a broad, global significance. First, the boldness of reforms demonstrates that the role of decision-makers is important even when all the odds seem to be against them. Second, it is possible to come up with policy inventions even in the most difficult circumstances. Third, Estonia's economic performance and ability to tackle the most challenging economic situation with radical economic policies in the difficult climates of the 1990s and the 21st century’s first decade is a clear indication that our policy making principles of currency board, fiscal conservatism and economic liberalism work well in any economic circumstances. Indeed, it takes a determined paddler to hold course when going against the tide in a world where support for market-based and fiscally conservative solutions sinks immediately after an economic crisis occurs.