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Growth and Inflation Severely Hit by War The Russian invasion of Ukraine has hit the growth and inflation outlook for Estonia materially. In the near-term, growth will be severely affected by the direct and indirect impact on trade, a decline in consumer confidence and double-digit inflation. To reflect this, we have revised our real GDP forecast to 1.2% in 2022 and 1.8% in 2023 from 4.6% and 4.4%, respectively, at the time of our last review of the sovereign rating in February. In addition, the authorities and the European Commission project long-term growth potential to be around 1pp lower as a result of the war, reflecting the damage to trade with Russia, lower investment and a change in migration patterns. Fiscal Deficit to Widen Materially Changes to revenues and expenditures stemming from lower growth and fiscal measures implemented in response to the war have placed Estonia’s debt on an upward trajectory.