A structural deterioration in the fiscal position and protracted headwinds from the Russia-Ukraine war drive the downgrade. A sound institutional framework, robust growth potential and still low public debt are credit strengths.

The country's prolonged exposure to the cost-of-living crisis amid higher geopolitical risks and a weakening fiscal position drive the Outlook revision. Solid economic growth prospects and low public debt support the ratings.

Estonia's sound institutions, solid medium-run growth prospects and low public debt are credit strengths. The still moderate income levels, high exposure to external shocks and adverse demographic trends are challenges.

Robust growth, prudent fiscal management as well as improved external resilience drive the rating upgrade. Wage-productivity growth imbalances, labour shortages and risks in the banking sector remain challenges.