(MENAFN- Trend News Agency) BAKU, Azerbaijan, September 25. Estonia's economy inched back into positive territory in the first half of 2025 after suffering a deep recession in 2023 and a further contraction in 2024, according to the European Bank for Reconstruction and Development (EBRD), Trend reports.

Real GDP grew by just 0.1 percent year on year, as households boosted spending ahead of the July value-added tax (VAT) increase.

Despite this modest rebound, the EBRD notes that exports and private investment remain weak, reflecting soft demand from Nordic economies and ongoing global trade tensions.

Investment activity has begun to pick up steam, thanks to a boost from expanding corporate lending and public infrastructure projects like Rail Baltica, the EU-backed railway that ties together Poland, Lithuania, Latvia, Estonia, and Finland.

Even though the EU funds, like the Recovery and Resilience Facility, are lending a helping hand, Estonia's public finances are feeling the pinch. The budget deficit is set to balloon in 2025 as defense spending inches closer to 5 percent of GDP, while higher taxes put a damper on household consumption.

Looking ahead, the EBRD forecasts Estonia's GDP to grow by 0.5 percent in 2025 and 2 percent in 2026. The bank cautions that risks remain tilted to the downside, with recovery hinging on stronger external demand and greater stability in international trade.

MENAFN25092025000187011040ID1110110000