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.