“After Lithuania's economy got back on the path of economic growth in 2024, growth is expected to strengthen further next year supported by external demand recovery. Though inflation will accelerate to 2.5% in 2025, the rate of inflation will be favourable to economic growth. With the labour market remaining sufficiently resilient, the average national wage will grow at a relatively fast pace and significantly exceed the impact of inflation. This will lead to a further increase in purchasing power of the population and stimulate domestic consumption”, says Minister of Finance Rimantas Šadžius.
The economic development scenario prepared by the Ministry of Finance projects that after relatively good results in the first three quarters of this year, Lithuania's gross domestic product (GDP) will grow faster in 2024 than expected in September – a growth rate will reach 2.4%. The growth rate is set to accelerate to 2.8% next year and in 2026–2027 up to 2.9% on average per year.
With economic recovery, the labour market has remained resilient this year, the unemployment rate will constitute 7.4% as a result of a faster growth of the labour force. The unemployment rate is expected to fall to 7.1% in 2025, while the employment growth will reach 0.3%. In the following medium-term years, the unemployment rate is expected to gradually decline.
The scenario projects that the average gross monthly wage growth this year will remain strong and reach 10.1%. Next year, the average monthly gross wage growth rate is expected to reach 7.9%.
Inflation remained low in the first three quarters of this year. The inflation rate is expected to decline slightly faster in 2024 than expected in September– the average annual inflation rate by 0.9%. Lower inflation will be driven by more consumer-friendly food price developments, more pronounced deflation of energy commodities, as well as subdued price pressures for non-energy industrial goods and more moderate service inflation. The inflation rate is expected to remain close to 2.5% in the following medium-term years.
In a context of rising household disposable income and low inflation, the purchasing power of the population will further strengthen. Household consumption expenditure is expected to grow 3.3% this year, and in 2025–2027, as the financial situation of the population continues to improve, household consumption expenditure could grow on average by 3.5% per year.
Expenditure on gross fixed capital formation (GFCF) is expected to fall by 1.9% this year due to high uncertainty and slow growth in external demand. In the following medium-term years, the growth rate of GFCF expenditure could accelerate on average up to 5.5% per annum, supported by stronger growth in external and domestic demand, increased investment in national security and the need to invest in green technologies and measures to increase labour productivity.
The scenario foresees an annual change in exports of goods and services (at constant prices) of 1.2% in 2024. The annual growth rate of this indicator could accelerate to 3.9% next year and 4.2% in 2026-2027 due to more favourable economic developments of the main trading partners.
The scenario has been drafted in the context of still exceptionally high external instability and economic uncertainty, on-going active military actions in Ukraine and other geopolitical tensions.
The intensification of russia’s war against Ukraine and geopolitical tensions in the Middle East, negative repercussions of rising protectionism on international trade, price shocks of energy and other raw materials as well as food, less favourable developments in the euro area and the global economy, fluctuations in global financial markets, ageing society and shortage of workers are part of negative risk factors that could lead to changes in the baseline estimates in this scenario.
There are also positive risks, such as stronger domestic and foreign demand, faster monetary policy easing, increased investment in security, faster implementation of the European Green Deal and other EU-funded projects, more favourable demographic trends and immigration of skilled workers, faster green energy transition, which could lead to more favourable economic development.
