Lithuania’s economy is expected to continue growing over the forecast horizon, supported by private consumption, which will be driven by increasing wages and release of the second pillar pensions. Investment is also expected to grow. US tariffs and the adverse geopolitical context are having a limited economic effect. Real GDP is projected to grow by 2.7% in 2025, 3.0% in 2026 and 2.1% in 2027. Inflation is expected to rise to 3.4% in 2025 driven by an increase in services and food prices but ease to 2.9% in 2026, restrained by lower energy prices. In 2027, energy prices are expected to rise due to introduction of ETS2, the overall inflation constituting 2.4%. The general government deficit is projected to increase from 2.2% in 2025, to 2.6% in 2026, and to 2.7% in 2027.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 2.4 | 3.0 | 2.2 |
| Inflation (%, yoy) | 3.4 | 2.8 | 2.7 |
| Unemployment (%) | 7.1 | 6.8 | 6.8 |
| General government balance (% of GDP) | -2.2 | -2.5 | -2.7 |
| Gross public debt (% of GDP) | 39.8 | 44.7 | 48.2 |
| Current account balance (% of GDP) | 1.5 | 1.1 | 1.3 |
Economic activity to continue growing despite some limiting factors
Consumption and investment in the beginning of 2025 had a large positive effect on real GDP growth, and these factors are going to continue to play the major role in the second half of 2025 supported by increasing wages, andlower borrowing costs.
In 2025 - 2027, real wage growth is set to support private consumption. Pension reform, which makes second pillar pension voluntary, will give a boost to consumption, raising it in 2026 up to 5%, while in 2027 growth in consumption it is projected to decline to moderate 2.1%. The saving rate is expected to be high, at 11.4-12.8% of disposable income, while investment is projected to recover, supported by the RRF and need to boost defence. Despite the high uncertainty that could limit the growth in private investment, investments are expected to increase by 5.1% in 2025, 4% in 2026 and 2027. US tariffs are expected to weigh on the growth of exports in goods, but Lithuania’s direct exposure to the US remains limited (around 5% of total exports in 2024) and it remains competitive vis-a-vis its main trading partners. As exports of services remain robust and goods recover given recovery in export markets and resilient non-cost competitiveness, total exports are set to grow between 2.5% and 3.2% in 2025 - 2027. At the same time, imports continue to outpace exports in the forecast period because of strong growth in consumption including consumption of imported goods.
Labour market set to gradually tighten again
The growth rate in the labour force between 2022 and 2024, largely attributable to the inflow of persons fleeing from Ukraine, is expected to decelerate in 2025 (0.2%) and cease in 2026 and 2027, as natural population decline resumes in 2026. In 2025, the unemployment rate is expected to be the same as in 2024 (7.1%). Unemployment rate is expected to decline to 6.8% in 2026 amid robust growth, and remain at the same level in 2027. The persistence of labour shortages and skills mismatches is expected to support wage growth, projected at 8.1% in 2025, 7.6% in 2026 and 6.1% in 2027. A slower pace is expected compared to previous years given lower inflation and recent high wage gains.
Inflation expected to pick up but remain limited by trade and oil price developments
HICP inflation is expected to increase to 3.4% in 2025 following a jump in energy prices in the early months of the year, and steady increase in food and service prices. Increased excise duties on petrol, alcohol and cigarettes contributed to higher inflation. However, energy prices are set to decline in 2026, due to lower oil and gas prices. Service inflation is expected to exceed 5%, following the dynamics of wage growth. The impact of US tariffs reduces inflation in non-energy goods, due to intensifying competitive pressures from diverted Chinese imports. Nevertheless, it is set to be positive due to increased demand. In 2027, an increase in energy prices due to introduction of ETS2 is expected to add around 0.3% on the headline inflation in 2027.
General government deficit set to increase
In 2025, the general government deficit is forecast to increase to 2.2% of GDP, up from 1.3% in 2024. This is due to higher expenditure on social benefits, public investment , particularly on national defence, and interest payments. General government consumption and public wages are also driving increased expenditure. .
In 2026, the deficit is projected to increase to 2.6% of GDP, driven by rising general government expenditure (by 0.6 pps. of GDP), while revenue is expected to increase at a slower pace (by 0.2 pps. of GDP). The main reason behind the widening deficit is the projected increase in expenditure related to national investments (especially on defence) by 1 pp. of GDP. An increase in social expenditure (0.3 pps. of GDP), and interest expenditure (0.2 pps. of GDP) are the other major contributors to rising 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 personal income tax and social security contributions.However, the projected increase in revenue is not expected to fully offset the higher expenditure.
The deficit is expected to increase to 2.7% of GDP in 2027, when again the general government expenditure is projected to rise by more (0.2 pps of GDP in comparison to 2026) than revenue (0.1 pps). The increase in expenditure is forecast to be driven mainly by rising spending on interest and social benefits (including pensions).
In 2025, public debt is expected to increase to 39.6% of GDP, followed by 42.1% in 2026 and 45.4% in 2027, due to the rising deficit in 2026 and high stock-flow adjustments in 2026 and 2027 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.