Small businesses, employing most Estonians, can find new growth opportunities this year. According to Vaidotas Šumskis, an economist at Finora Bank, these lie in the recovering purchasing power of Estonians, Finland’s economic rebound, and exports to unexpected European countries outperforming even Germany.
According to Vaidotas Šumskis, an economist at Finora Bank, which operates in both Estonia and Lithuania and focuses primarily on SMEs, the overall economic environment is currently exceptionally unpredictable. However, recent data suggests that Estonian businesses have access to several emerging growth opportunities this year.
“We specifically analyzed the factors impacting small and medium-sized businesses, which employ the majority of Estonia’s workforce and pay the lion’s share of labor taxes. These businesses are the backbone of Estonia’s economy, and their success is in everyone’s interest,” Šumskis explained.
Finora Bank’s economist highlighted three key trends shaping 2025 in both Estonia and Europe—offering growth potential for thousands of Estonian SMEs, whether they sell domestically or abroad.
Estonians Are Resuming Spending
The economic uncertainty and cautious spending habits analysts describe are challenges that Estonia’s small businesses experience daily in their sales. Against the backdrop of a recent income tax increase and the arrival of the first-ever car tax notices, the idea that Estonians will begin spending more in 2025 might initially seem far-fetched.
At the same time, several key data points suggest that Estonian consumption is more likely to grow than decline this year. Most notably, various forecasts indicate that Estonians’ real wages will grow again by up to 2% this year, even despite tax increases that on their own increase prices. For several years in a row, income growth has outpaced inflation. This isn’t just theoretical average wage growth driven by high earners but rather the opposite, as a significant portion of real wage growth stems from an 8% increase in the minimum wage, which, in turn, nudges slightly higher but still lower-end wages upward.
Additionally, household budgets are receiving relief from the consistent decline in the Euribor rate. Even if a cautious Estonian saves half of the money freed up from lower loan payments, the sheer number of mortgage holders means over €100 million will still flow into consumption in 2025.
It is also worth noting that while retail and industry are still facing challenging times, Estonian service companies are already in a period of new growth. Service companies increased their revenue by about 2% last year, with a disproportionately larger share of that growth occurring in the second half of the year. In addition to increased service exports, this could indicate that Estonians are again increasingly willing to spend, as the service economy is largely domestic-focused.
Finland Is Rebounding
For many Estonian businesses, either directly or indirectly, the visible recovery of Finland’s economy is good news. Estonian entrepreneurs deserve credit for significantly expanding and diversifying their export markets in recent years. While in 2022, the four largest target markets—Finland, Sweden, Latvia, and Lithuania—accounted for over 50% of Estonia’s total exports, by the end of 2024, this figure had dropped to 43%. Finland and Latvia saw the largest share declines, by five and three percentage points, respectively. At the same time, exports’ share to countries like Germany, Poland, and Belgium increased.
Nevertheless, Finland remains Estonia’s largest foreign trade partner, and the state of Finland’s economy significantly impacts the average Estonian business. Therefore, it is important to note and take advantage of the clear signs of economic optimism returning in Finland. Inventory levels are decreasing again, and business confidence is growing. It’s worth focusing on sales in Finland, and the Finnish market can once again be seen as a reliable opportunity.
Should You Push Into Germany, or Look to Poland or Spain Instead?
The same cannot necessarily be said for the typical economic powerhouses of the European Union, Germany, and France. While opportunities always exist in such large markets, it’s doubtful that the average Estonian business, with limited sales resources, will realistically find success amidst the generally gloomy sentiment in these markets this year. The EU’s largest economies are struggling with a variety of internal as well as export-related issues. Thus, the increasingly common business wisdom in Estonia—to bypass Scandinavian intermediaries and try selling directly to Western Europe—may not yield quick results this year.
However, the EU is a market of 450 million consumers, and Germany and France account for just a third of that. Many factors influence a country’s economic growth, and Europe is very diverse in terms of growth potential. The often-held belief that Europe has a “stronger” core in the west or north and “weaker” parts elsewhere has no longer been accurate for years. Southern Europe has in some cases recovered from the COVID-19, energy, and supply chain crises significantly faster. According to the European Commission’s forecast, the fastest-growing economies in the EU in 2025 will be Poland, Croatia, Bulgaria, and Lithuania, with above-average growth also expected in Spain, Romania, Slovakia, the Czech Republic, and Denmark. These are countries that Estonian entrepreneurs should consider when searching for new target markets.
Vaidotas Šumskis also emphasized that in the current economic situation, optimism and courage to act contribute the most to real income and profit growth.
“Psychological factors cannot be underestimated in economics. Finora Bank’s two home markets, Estonia and Lithuania, are very similar countries with similar macroeconomic parameters—yet Lithuania’s economy is already growing quite rapidly, because Lithuanian entrepreneurs and consumers believe in a brighter future. Estonian entrepreneurs have just as much growth potential as their Lithuanian counterparts. In 2025, entrepreneurs should remember the Estonian saying: ‘Boldness is half the battle’” the Finora Bank economist advised.