Baltics | Lithuania outperforms the region

CEE Macro Outlook , 16. Jan.

The Baltic region's economies are expected to return to growth in 2025, with Lithuania leading the way with an expected growth rate three times larger than its peers. Inflation remains stable in Lithuania and Latvia, while Estonia is projected to reach the target only in 2026. The retail and industrial sectors are again performing best in Lithuania, while facing challenges elsewhere. The hard data are further confirmed by the sentiment indices, which show Lithuania leading on all fronts. Budget deficits in the Baltic countries are expected to be around the Maastricht Criteria threshold, influenced by defense spending for the years to come. Despite poor economic performance in recent years, Estonia leads the region in Sustainable Development Goals.

Estonia is the only Baltic country with an economic contraction expected in 2024, with GDP not growing for the third year in a row. Latvia is also facing economic stagnation after positive growth revisions in 2023, while Lithuania is expected to grow by more than 2% in 2024. Inflation trends vary, with Estonia experiencing higher inflation due to tax increases, whereas its peers have inflation pressures already under control. The labor market remains challenging mostly in Estonia, with wage growth expected to slow down across the region. The retail sector in Lithuania has shown robust growth, while Estonia and Latvia are emerging from low points. The RRF funds are flowing in, but governments need to accelerate their drawing efforts as the 2026 deadline approaches.