Economic overview: Lithuania's GDP to grow by 3% this year, US tariffs may increase uncertainty

Lithuania in the strongest position

"Lithuania continues to stand out among the Baltic states with the strongest economy. The country is experiencing rapid industrial growth, and its export markets are performing better than those of Latvia and Estonia. Lower inflation and rising wages are strengthening household purchasing power, driving consumption," said Joona Widgren, Senior Economist at OP Financial Group, in the bank’s latest economic overview.

The bank has maintained its December forecast, predicting that Lithuania's GDP will grow by 3% this year, with the same growth rate anticipated for 2026. However, it highlights that US trade and foreign policy remain unpredictable, which could lead to unexpected developments. As a result, businesses and countries should adapt to an increasingly uncertain economic environment.

OP has revised its annual inflation forecast for all Baltic states, now estimating that Lithuania's inflation rate will reach 3% this year – 0.5 percentage points higher than the December projection. According to Widgren, inflation is expected to decline slightly to 2.5% next year.

Tariffs fuel uncertainty

While Lithuania’s economy remains on a growth trajectory, potential trade conflicts with the US pose challenges not only to international trade but also to investment.

"Although Lithuanian businesses are not heavily dependent on exports to the U.S., tariffs can have a broader impact. The shock of uncertainty may reduce investment volumes, disrupt supply chains, and, in the short term, decrease business efficiency, the scale of innovation adoption, and competitiveness. However, it could also encourage local production and investments in domestic businesses," said Leda Irzikeviciene, Country Manager at OP Corporate Bank’s Lithuanian branch.

She noted that tariffs would affect business sectors differently. Companies operating locally might benefit from reduced competition, but larger enterprises reliant on imported raw materials, exports, or supplying goods to major European exporters could be impacted more significantly.

OP economists estimate that Latvia’s and Estonia’s exports to the US are below the EU average, while Lithuania has the highest export volume among the three Baltic states, aligning with the EU’s average. However, exports remain a substantial part of GDP for all three countries – accounting for approximately 2.4% of Lithuania’s GDP, 1.3% for Latvia’s and 1.8% for Estonia’s.

A potential negative cycle

Should the US impose a 10% tariff on all European goods and services, and the EU respond with a similar countermeasure, Widgren predicts that economic growth could decline by approximately 0.3 percentage points over the next few years.

If reciprocal tariffs were set at 25%, as has been suggested, the negative impact on GDP could exceed 0.5 percentage points. Investment volumes would also shrink – under the mildest tariff scenario, investment is expected to decline by 4% on both sides of the Atlantic.

 "Lithuanian companies have demonstrated resilience in adapting to changing economic conditions, having navigated multiple crises. Despite growing uncertainty, business confidence remains stable, and companies continue to invest in production efficiency, energy-saving measures, innovation, real estate projects, and fleet modernisation to maintain their competitive edge," Irzikeviciene observed.

According to the bank’s representatives, tariffs not only reduce export volumes but also increase business costs and drive up consumer prices, thereby weakening purchasing power and fuelling inflation, which in turn adversely affects economic growth.

Latvia returns to growth

“OP Corporate Bank” has maintained its GDP growth forecast for Latvia at 2.5% for this year. In 2024, the country’s economy contracted by 0.3% despite expectations of recovery. However, it is projected that Latvia will catch up with Lithuania in 2026, reaching a 3% GDP growth rate.

Inflation in Latvia is expected to remain at around 2% in both 2025 and 2026, the lowest rate among the Baltic states.

According to Widgren, domestic consumption in Latvia is set to rise this year, with business investment and exports recovering. Nevertheless, economic risks associated with US tariff policies and related uncertainty shocks remain a concern.

Estonia’s economy slowed by tax increases

OP economists predict that Estonia's economy will recover this year, achieving a GDP growth rate of 1.7%. However, this is 0.8 percentage points lower than the previous estimate in December. Estonia's economy contracted by 0.7% in 2024, performing slightly worse than anticipated. In line with its Baltic neighbours, Estonia is expected to reach 3% GDP growth in 2026.

Estonia continues to experience the highest inflation in the region, with the 2025 rate forecasted at 4%—twice as high as in Latvia and 1 percentage point above the previous quarter’s estimate. Inflation is expected to ease to 3% in 2026.

Like the rest of the region, Estonia anticipates an export recovery this year, but this could be hindered by heightened risks of tariff disputes. Lower interest rates are encouraging investment and supporting households, but consumer spending is expected to recover only modestly. Increased taxes are adding to inflationary pressures and slowing economic growth.

“OP Corporate Bank” has been operating in Lithuania for 12 years. The bank is one of the country’s largest financiers of large and medium-sized enterprises, with a corporate loan portfolio totalling EUR 1.4 billion. “OP Corporate Bank” operates across the Baltic states and Finland as part of Finland’s largest financial group, “OP Financial Group”.