Lithuania’s economy is expected to continue growing over the forecast horizon, supported by robust private consumption, a modest recovery in investment, and buoyant exports. However, global trade tensions and uncertainty, in addition to the adverse geopolitical context, are set to have a limiting effect on goods exports, consumption, investments and prices. Real GDP is expected to grow by 2.8%. in 2025 and pick up to 3.1% in 2026. Inflation is expected to rise to 2.6% in 2025 driven by an increase in energy and food prices in the early months of the year but ease to 1.2% in 2026, supported by lower commodity prices. The general government deficit is projected to increase from 1.3% in 2024 to 2.3% in 2025 and to stay constant in 2026.
| Indicators | 2024 | 2025 | 2026 |
|---|---|---|---|
| GDP growth (%, yoy) | 2,8 | 2,8 | 3,1 |
| Inflation (%, yoy) | 0,9 | 2,6 | 1,2 |
| Unemployment (%) | 7,1 | 6,8 | 6,6 |
| General government balance (% of GDP) | -1,3 | -2,3 | -2,3 |
| Gross public debt (% of GDP) | 38,2 | 41,2 | 43,9 |
| Current account balance (% of GDP) | 2,6 | 2,0 | 1,9 |
Economic activity to continue growing despite some limiting factors
Consumption and investment developments at the end of 2024 had a large positive effect in 2024, leading to 2.8% growth, and a positive carry-over effect into 2025.
In 2025 and 2026, continued real wage growth is supporting private consumption, although geopolitical uncertainty and an increase in excise duties from the beginning of 2025 somewhat reduce expected consumption growth. The savings rate is set to continue its increase to historically high rates of around 12-13% of disposable income, while investment is projected to recover, given investments supported by the RRF and in defence. Nevertheless, the climate of high uncertainty is likely to limit the growth in private investment, especially during 2025, leading to 3.5% and 4% growth of total investment over the forecast horizon. Goods exports are expected to return to growth, despite tariff developments are expected to weigh on the growth of exports in goods as Lithuania’s direct exposure to the US remains limited (around 5 of total exports in 2024) and Lithuania remains competitive with its main trading partners. As services remain robust and goods recover given improvements in export markets and resilient non-cost competitiveness, total exports are set to grow between 3% and 3.5% in 2025 and 2026. On the other hand, strong consumption is expected to imply that imports continue to slightly outpace exports.
Labour market set to gradually tighten again
The growth in the labour force between 2022 and 2024, in large part attributable to the inflow of persons fleeing from Ukraine, is likely to cease in 2025 and 2026, as natural population decline resumes in 2026. As economic activity continues to grow, the unemployment rate is expected to gradually decrease to 6.8% in 2025 and 6.6% in 2026. The persistence of labour and skills mismatches is expected to support continued wage growth at around 7.5% in 2025 and gradually decelerating close to 7% in 2026. A slower pace is expected compared to previous years given lower inflation rates and recently high wage gains.
Inflation expected to pick up but remain limited by trade and oil price developments
HICP inflation is expected to increase to 2.6% in 2025 following a jump in energy and food prices in the early months of the year, increased excise duties on petrol, alcohol and cigarettes, and sustained by continued services inflation. However, commodity prices are set to decline in 2025, as oil prices counteract increasing gas and electricity prices, and recover very slowly at the end of 2026. The rest of the components of HICP are set to increase only gradually in 2026 and services price inflation is expected to progressively slow over the horizon to around 4% by the end of 2026, following the normalisation of wage growth. The additional impact of trade tensions is set to bring HICP down to 1.2% in 2026.
General government deficit set to increase
In 2024, the general government deficit increased moderately to 1.3% of GDP (from 0.7% in 2023), due to increases in public wages, interest expenditure and social spending, as well as intermediate consumption expenditure increases related to carry over of projects and expenditure initially planned for 2023.
In 2025, the deficit is projected to continue to increase to 2.3% of GDP, driven by rising general government expenditure (by 2.1 pps. of GDP), while revenue is expected to increase at a slower pace (by 1.1 pps. of GDP). The main contributor to the rising deficit is the increase in expenditure related to the social benefits (pensions included), which is projected to rise by 1.0 pps. of GDP, mainly due to the annual indexation of public pensions as well as an increase in the ‘minimum consumption basket’, to which many social benefits are associated. An increase in public investments (0.7 pps. of GDP, out of which 0.3 pps. is driven by the projected increase in defence investments), intermediate consumption (0.3 pps. of GDP), public wages (0.2 pps. of GDP), and interest expenditure (0.2 pps. of GDP) are the other major contributors to higher expenditure. General government revenue is forecast to increase mainly due to the increase in VAT and excise duties for polluting fuels as well as increasing revenues from the social security contributions, but the projected increase is not expected to cover for the higher expenditure.
The deficit is expected to remain constant at 2.3% of GDP in 2026. The general government expenditure is projected to increase by 0.3 pps of GDP in comparison to 2025, which is expected to be almost fully matched by the projected revenue increase of 0.2 pps of GDP.
In 2024, public debt increased to 38.2% of GDP. In 2025 and 2026, the debt-to-GDP ratio is projected to increase further, reaching 41.2% and 43.9%, respectively, due to the rising deficit in 2025 and high stock flow adjustments in 2025 and 2026 which are needed mostly to compensate the significant deficits in the state budget as the surpluses in the Social Security Fund cannot be used for this purpose.