“OP Corporate Bank” Lowers Lithuania’s GDP Growth Forecast to 2%; Outcome of EU–US Trade Talks to Be Crucial

Lithuania – the strongest performer in the region

 “Lithuania continues to lead the region economically, supported by investment and robust domestic consumption. Exports are also rising, though, as elsewhere, export-related risks have increased significantly. If the EU and US agree on mutually beneficial tariff arrangements, Lithuania’s growth this year could accelerate,” said Joona Widgren, Senior Economist at OP Financial Group, during the bank’s economic outlook presentation on Wednesday.

In March, OP economists projected GDP growth of 3% for both this year and next. However, this quarter they revised the 2025 forecast down to 2%, and the 2026 projection to 2.5%.

The bank’s economists have left their inflation forecast for Lithuania unchanged: they expect annual inflation to be around 3% this year, easing to 2.5% next year – closer to the target rate.

Among the Baltic States, Lithuania currently has the highest unemployment rate, standing at approximately 6.9%.

Global trade instability

 “At present, the global economic outlook is being shaped largely by the trade conflict between the US and the rest of the world. Although a temporary suspension of tariffs has been agreed, the prevailing uncertainty is detrimental to all economies. The US teeters on the brink of recession, and growth in the eurozone is minimal. In this context, Lithuania’s economic prospects remain decent,” said Leda Irzikeviciene, Country Manager of OP Corporate Bank’s Lithuanian branch.

Industry remains the driving force of Lithuania’s economy. The industrial production in Lithuania has remained stable in early 2025, following the rapid growth at the end of last year. The industrial production is close to its pandemic highs. Over the past decade, Lithuania’s manufacturing output has increased by nearly 70%, in contrast to growth of just 20% in Latvia and Estonia.

According to Irzikeviciene, other sectors are also performing well. Residential construction and infrastructure are recovering, the energy sector is stepping up investment in renewable generation, and exports are being bolstered by IT and transport firms. Strong domestic consumption continues to support retail trade.

 OP economists forecast eurozone GDP growth of just 0.5% this year, rising to 1.3% in 2026. These are significantly lower than the March projections, as uncertainty over tariffs and the future of trade continue to weigh on growth.

 When assessing employment exposure to US-dependent industries, Italy, Ireland, and Iceland face the greatest risks, though the impact of US tariffs would be broadly distributed across Europe.

 Ceasefire could stimulate growth

 According to Widgren, a lasting ceasefire in Ukraine would have a positive effect on the European and Baltic economies. It would boost consumer and business confidence, increase defence spending, and generate substantial demand for Ukraine’s reconstruction.

A long-term agreement is also expected to lead to lower gas prices, which would support economic growth.

Should Ukrainian refugees begin returning to Ukraine, it could slightly dampen European growth, but the overall impact of such migration is expected to be limited.

 OP notes that the Baltic States maintain a healthy ratio of defence spending to public debt compared with other European nations. Lithuania allocates around 2.8% of GDP to defence, Latvia 2.9%, and Estonia 3.1%, placing them among the leading European countries in this regard.

 Public debt levels are also among the lowest in Europe: 24% of GDP in Estonia, 38% in Lithuania, and 47% in Latvia.

Outlook for Latvia less optimistic

The bank has also downgraded its economic forecasts for the other Baltic States. According to OP Corporate Bank, Latvia’s GDP is expected to grow by 1.5% in 2025, revised down from the March forecast of 2.5%. Economists now believe that Latvia will only reach this level of growth in 2026, whereas earlier forecasts had suggested a 3% expansion.

Latvia’s annual inflation forecast has been revised upwards to 2.5% for both this year and next.

While slightly stronger domestic consumption is supporting growth, investment remains stagnant due to global uncertainty. Export development is slow amid increased risks, and while Latvia maintains the lowest unemployment rate in the region – around 5.1% – economic momentum is limited.

Estonia recovering gradually

Estonia too is facing a more modest growth outlook than projected in March. Updated figures now suggest GDP will grow by 1% this year, with a 2.5% increase expected in 2026, bringing it in line with the other Baltic States.

Annual inflation in Estonia is projected at 5% for 2025, easing to 3.5% in 2026. However, this remains the highest inflation rate among the Baltics, with current price growth double that of Latvia and 1 percentage point higher than previously forecast.

Estonia’s economy is being supported by public investment. Nonetheless, growth remains weak as trade tensions weigh on exports, investment, and demand. Despite this, the labour market remains stable, with unemployment at approximately 6.7%.

 OP Corporate Bank’s Lithuanian branch is part of the leading Finnish financial services group OP Financial Group and has been operating in Lithuania for 12 years. The business bank is one of the country’s largest lenders to medium and large enterprises, with a business loan and leasing portfolio of EUR 1.5 billion. OP Corporate Bank operates across the Baltic States and Finland.