Economic overview: Lithuania’s economy set for faster growth next year

Lithuania leads the region economically

“Lithuania’s trading markets are broader compared to other Baltic countries, and the diversified export geography has helped maintain higher industrial production volumes this year. Additionally, Lithuanian consumers remain optimistic, with their confidence driving greater private consumption, positively influencing the economy,” says Joona Widgren, Senior Economist at OP Financial Group.

The latest economic review from OP confirmed the September forecast of 2% growth in 2024 and 3% in 2025. However, the bank revised its annual inflation forecast, projecting it to reach 1.3% by year-end — 0.7 percentage points lower than the previous quarter's estimate, indicating a slowdown in price increases. Inflation in 2025 is expected to rise to 2.5%, the second highest in the Baltics after Estonia’s projected 3%.

Declining interest rates boost investments

“Lithuanian businesses demonstrate resilience and adaptability to changing market conditions and uncertainty, successfully pursuing long-term growth strategies. Recently, we’ve observed increasing investment activity — transport companies are buying new trucks, the energy sector continues expanding renewable energy capacity, and the agricultural sector is considering new equipment after a strong year. Additionally, there are positive trends in the real estate market,” notes Leda Irzikeviciene, Country Manager at OP Corporate Bank’s Lithuanian branch.

The European Central Bank (ECB) Governing Council is set to meet on December 12 in Frankfurt, with economists expecting another reduction in key interest rates by 25 basis points to 3%. According to Irzikeviciene, the combination of economic growth and ECB rate cuts creates favourable conditions for long-term investments.

The ECB began lowering interest rates this summer to curb inflation in Europe, implementing reductions of 25 basis points on June 6, September 12, and October 17.

Baltic economies return to growth

“Historically, economic trends across the Baltic countries have been relatively similar. However, recent years have seen significant divergence in GDP growth rates. Lithuania's industrial sector showed resilience during the pandemic due to its flexibility and lower dependency on disrupted global supply chains.

Conversely, Latvia’s recovery is slower due to its reliance on cyclical wood and furniture sectors. Estonia faced setbacks in its industrial output caused by declining export markets, as the country’s producers are heavily dependent on Finland and Sweden’s construction and real estate sectors,” explains Widgren.

Nevertheless, Widgren notes that lower interest rates and stronger exports will positively affect all Baltic countries, enabling regional growth in the coming year.

Latvia shows minimal inflation growth

OP Corporate Bank forecasts Latvia’s GDP growth at 0.7% this year, rising to 2.5% in 2025. Annual inflation is expected to be 1.2% in 2024, slightly lower than Lithuania’s, and increase to 1.5% in 2025 — the lowest in the region.

According to Widgren, increased household purchasing power and lower interest rates will drive consumption and investment in Latvia.

Tax hikes slow Estonia’s recovery

Estonia’s economy is expected to contract by 0.5% this year but recover with 2.5% growth in 2025. Despite this, Estonia will continue to experience the highest inflation in the Baltics, with 2024 inflation estimated at 3.5% — lower than previously predicted — and decreasing to 3% next year.

Widgren notes that while Estonia’s export and consumption sectors are rebounding, tax increases are slowing the country's overall economic recovery.

OP Corporate Bank has been operating in Lithuania for 11 years, financing major and leading mid-sized businesses. The bank’s business loan portfolio stands at €1.3 billion, making it the fifth-largest bank in Lithuania by business loan volume.