CEE Outlook | Baltics | Recovery slowly coming to the Baltics

All three Baltic economies are finally expected to see growth this year, with Latvia forecasted to have the slowest expansion at 0.5%, while Lithuania is expected to maintain a robust 2.8% growth rate. Estonia is poised to return to growth following two consecutive years of economic contraction, with a baseline forecast suggesting a 1.1% increase in GDP for 2025. Inflation remains a concern, with Estonia recording the highest rates in the Euro area at 5.2% as of June 2025, driven by rising food prices and VAT increases. However, Latvia and Lithuania have lower inflation outlook for this year at 3.0% and 2.6% respectively. Fiscal deficits last year positively surprised across the Baltic states. Latvia is projected to have the highest deficit in 2025, driven by tax reforms and declining state-owned enterprise income, slightly exceeding the 3% threshold. Estonia and Lithuania are projected to maintain moderate deficits, which are expected to marginally widen in 2026.

Estonia's labor market shows a high participation rate with an unemployment rate of 7.7% in early 2025. Wage growth in Estonia and Latvia is expected to moderate, while Lithuania's wage growth remains elevated due to labor market mismatches. Consumer sentiment varies, with Lithuania's consumers being the second-most optimistic in the EU, while Estonia reports the second-worst figures. The retail sector in Lithuania continues to grow consistently; however, Estonia's growth is largely due to a low base effect from the previous year. The countries are also progressing in RRF disbursements, with Lithuania receiving the largest share of funding in the Baltics. The Baltics outperform the EU average in several SDGs, scoring particularly high in education.