“The global economic environment is being transformed by the entry into force of the U.S. trade tariffs, which poses a challenge to keeping our industrial production competitive. In the face of high uncertainties in the external environment, Lithuania's growth is supported by domestic consumption, which may be further boosted next year by funds reaching the economy as a result of the possibility of retiring or withdrawing part of accumulated savings from the second-pillar pension funds. It is crucial that the State and investment funds create additional incentives to direct these funds primarily to investment, alternative forms of securing income in old age”, Acting Minister of Finance Rimantas Šadžius comments.
The economic development scenario prepared by the Ministry of Finance projects that after relatively good results in the first half of this year, Lithuania's gross domestic product (GDP) will grow more moderately in the second half of the year and 2.6% in 2025. The growth rate will accelerate to 3.3% next year and the growth is expected to be close to 2.5% in the outer years of the medium term.
With the persisting shortage of suitably skilled workers, the unemployment rate will reach 7.1% in 2025, fall to 6.8% at the end of the medium term, and the number of employed persons will increase moderately by 0.1% in 2025 and 0.2% in 2026, accordingly.
The scenario projects that the average gross monthly wage growth this year will remain strong enough and will reach 8.5%. In 2026, the average monthly gross wage growth rate is expected to reach 7.3%.
Inflation in the country increased over the first half of this year, but, as compared to the country’s multiannual average, remained slightly below it. The average annual inflation is expected to reach 3.5% in 2025. Over this period, inflation will be supported by higher administered prices, services and food prices, strong domestic demand affected also by one-off factors. In the outer years of the medium term, the inflation rate will moderately decelerate and will reach 2.4% at the end of the period.
As household income grows significantly above the rate of price growth, the purchasing power of the population will continue to strengthen. Household consumption expenditure is expected to grow 2.6% this year, and next year, as the financial possibilities of the population continue to increase, including the possibility of retiring or withdrawing part of the accumulated funds from the second-pillar pensions, the consumption in the country is expected to increase and the growth rate accelerate to 4.6%. At the end of the medium term, this expenditure will grow at a rate close to 3%.
Expenditure on gross fixed capital formation (GFCF) is expected to grow 7.3% this year. With growing external and domestic demand, increased investment in national security and the continued need to invest in labour productivity-enhancing measures, in 2026–2028 the average growth rate of expenditure on GFCF could be close to 5%.
The scenario foresees that real exports of goods and services will grow 3.2% in 2025. In the medium term, the development of export markets and the development of Lithuanian exports of goods will be negatively affected by deteriorated international trade conditions due to higher import tariffs imposed by the US on EU goods, but more favourable monetary policy and reduced interest rates should encourage the growth of exports of products whose demand is affected by the development of the construction and real estate sectors. Given this, real exports of goods and services are expected to grow 2.9% in 2026, and to accelerate to 3.3% in the outer years of the medium term.
The scenario has been developed against a background of increased external instability and economic uncertainty, continuing geopolitical tensions and growing uncertainty about international trade policy.
Russia’s ongoing war against Ukraine and intensification of geopolitical turmoil in the Middle East, negative effects of rising protectionism on global trade, price shocks of energy, other raw materials and food, less favourable developments in the euro area and the global economy, fluctuations in global financial markets, aging society and shortage of workers form a part of negative risk factors due to which the estimates of key indicators in this scenario may change.
Also, there are positive risks, such as stronger internal and external demand, faster monetary policy easing, fiscal policy at EU and national level fostering economic growth, faster implementation of projects financed by EU funds, more favourable demographic trends and immigration of skilled workers, faster transition to green energy, whose fulfilment could lead to a more favourable economic development.
