Economic overview: Lithuania’s economy set for 3% growth, but competitiveness declines

Lithuania further leads the region 

“Lithuania is a success story in the Baltics and even among the Nordics. Economic growth has been the strongest in recent years, while inflation is lower compared with Latvia and Estonia,” said Joona Widgren, Senior Economist at OP Financial Group, presenting the bank’s economic outlook on Tuesday.

Back in May, OP economists had cut Lithuania’s GDP forecast to 2% for 2025 and 2.5% for 2026. With steady growth continuing, forecasts have now been revised upwards.

The main growth driver is investment, especially residential construction and public investments, while industry has slowed and is expected to remain weaker through year-end.

Rising household purchasing power is supporting consumption. Unemployment remains the highest in the Baltics but stable.

Exports are performing relatively well despite U.S. tariffs, which have weighed on all EU economies. In Lithuania, pressure on export growth is also being exerted by the country's declining competitiveness due to rising costs.

Rising costs drive technological progress

“Lithuania is no longer a low-cost country. Wages keep rising, operating expenses are increasing, and this erodes international competitiveness. It puts pressure on companies to invest in productivity, automation, robotics, and AI solutions,” said Leda Iržikevičienė, OP Country Manager of OP Corporate Bank in Lithuania.  

She noted that businesses are increasingly interested in borrowing to finance expansion and product development, helped by falling Euribor rates and easing global trade tensions.

The state continues to implement long-term investments in infrastructure, growth is recorded in residential construction, the transport and logistics sector is renewing its fleet, other businesses are also investing in growth.

Demand for green energy and transformation projects remains strong as companies shift to more sustainable production and energy use.

Dependent on global trade

The euro zone economy is expected to grow by 1% this year and about 1.5% next year. OP economists have also revised these indicators upwards from their May forecast, which projected 0.5% growth this year and 1.3% next year.

Global economic growth this year will reach about 3%, compared with 2.5% projected in the spring.

Economies of Lithuania and other Baltic states are small and open, so growth in global trade is particularly important for them. This is positively influenced by the agreements reached between the EU and the US on tariffs, as well as by the overall easing of global trade tensions.

According to OP economists, the recovery of manufacturing in major export markets will also have a positive impact on Lithuania’s industry.

Nevertheless, the greatest positive impetus for Lithuania and for all of Europe would be peace in Ukraine and the beginning of that country’s reconstruction.

Situation in Latvia is not favourable

Bank’s economists have further lowered Latvia’s GDP growth forecasts: this year economic growth is expected to reach only 1%, while next year it is projected at 3%. In May, Latvia’s economy was forecast to grow by 1.5% this year. This is the second reduction this year.

The bank has also raised Latvia’s annual inflation forecast even further – to 5.3% this year and 3.5% next year, compared with the 2.5% increase in prices projected in May for both years.

“Latvia’s economic recovery is slow this year, although there are also positive signs that should provide momentum for faster growth next year, as several factors will support it,” said J. Widgren.

Investments and industry are supporting the economy this year, but household consumption remains weak. It is expected to start growing next year.

U.S. tariffs are putting pressure on exports, however, Latvian companies’ exports are gradually increasing.

Estonia still holds back

OP bank economists have not changed Estonia’s economic growth forecasts. The country’s GDP is expected to grow by 1% this year and reach 2.5% next year.

Annual inflation in Estonia will amount to 5.3% this year, softening to 3.5% next year. Nevertheless, it remains high and has stayed at this level for several years.

“Estonia’s recovery this year is happening slowly. One reason is US tariffs, which are hindering export growth,” the economist noted.

Investments in Estonia continue to grow, U.S. tariffs will slow export, and household consumption will remain sluggish this year.

Real household incomes are beginning to rise again, creating conditions for increased consumption, which will stimulate economic growth, especially next year.

Finnish investment in Lithuania

OP Corporate Bank’s Lithuanian branch is part of OP Financial Group, Finland’s largest financial services group. OP Corporate Bank considers Finland and the Baltic states as its home market.

The bank has been operating in Lithuania for 12 years and is one of the largest business financiers in the country. Its loan and leasing portfolio in Lithuania amounts to EUR 1.6 billion.