“Estonia’s economy is not used to a relatively mild but prolonged downturn or zero growth,” says Peeter Luikmel, an economist at the Bank of Estonia. Since regaining independence until the global financial crisis, downturns meant a rapid and sharp decline for Estonians, followed by recovery within a couple of years. “External demand vanished and then returned. Everything happened so quickly in the past that there was no time to reflect or look for culprits,” he recalls.
Where Estonia once relied on low labor costs to weather crises, wages have since risen and that advantage has disappeared. Nor can further momentum come from access to the European Union’s single market, since Estonia already has it. “We’ve stalled at about 70–80…