The economic context of Lithuania

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

As a member of the EU since 2004, Lithuania has experienced significant growth coupled with the rapid modernisation of its economy, becoming a member of the OECD in 2018. The country experienced the fastest recovery in Europe from the 2009 financial crisis, partly fuelled by a well-performing banking system and a diversified industrial sector; and it was one of the best-performing countries during the COVID-19 pandemic. Nevertheless, after growing 5% in 2021, economic growth in Lithuania slowed down in 2022 to 1.8%. This was mostly due to the adverse consequences of the Russian invasion of Ukraine, falling exports to some eastern European countries and contracting private consumption. Economic activity is forecast to decelerate further in 2023 (1.1% as per the IMF’s forecast) before edging up to 2.8% in 2024 driven by stronger private consumption expenditure and increased EU funds absorption.

Macroeconomic indicators are generally positive, having recorded budget surpluses before the pandemic. Nevertheless, the budget turned negative since then: in 2022, it was in deficit by 2.1% of GDP and in 2023 Fitch Ratings expects it to deteriorate to 4.3% amid higher expenditure measures, including packages to contain the effects of higher energy prices, spending on Ukrainian refugees, and investment in Lithuania's railway infrastructure as a result of the sanctions against Belarus. The 2023 budget also includes various more permanent measures, including wage increases in the public sector, in non-taxable income, in pensions, child benefits and other social benefits. The debt-to-GDP ratio decreased to 42.2% as strong nominal GDP growth outpaced nominal growth in debt by a large margin. The ratio is expected to follow a downward trend this year (39.5%) and the next (37.9% - IMF). Spiralling energy and food prices, as well as transportation services, contributed to a spike in the inflation rate, which averaged 17.6% in 2022. Strong wage dynamics have also contributed to an acceleration of core inflation. Weaker domestic and external activity, easing supply bottlenecks, and a gradual decline in global energy prices are expected to contribute to the declining dynamics of inflation, which is forecast at 8.4% and 3.2% in 2023 and 2024, respectively, by the IMF.

The unemployment rate increased marginally to 7.3% in 2022, from 7.1% one year earlier. Shortages of skilled labour, an increase in the minimum wage by 15% and strong public-sector wage growth should support continued wage growth in 2023, with the unemployment rate also decreasing to around 7%. The IMF estimated the country’s GDP per capita (PPP) at USD 46,159 in 2022; however, according to the latest figures released by Statistics Lithuania, around 24.5% of the population is at risk of poverty.

Main Sectors of Industry

Agriculture contributes 3.3% to the GDP and employs 6% of the workforce (World Bank, latest data available). Lithuania's main agricultural products are wheat, wood, barley, potatoes, sugar beets, wine and meat (beef, mutton and pork). Arable land and permanent crops cover 2 million hectares, more than one-third of the country’s territory. According to preliminary figures from the national statistical office, in 2022 the gross agricultural production reached EUR 5 billion, up from EUR 3 billion one year earlier (such a sharp increase was mostly due to the increase in prices).

The industrial sector accounts for 25.3% of GDP, employing around 26% of the active population. The main industrial sectors are electronics, chemical products, machine tools, metal processing, construction material, household appliances, food processing, light industry (including textile), clothing and furniture. The country is also developing oil refineries and shipyards. The World Bank estimates that the manufacturing sector alone contributes to 16% of the country’s GDP. In 2022, industrial production in Lithuania totalled EUR 38.4 billion at current prices and, compared to the same period in 2021, increased by 9.4% at constant prices.

Lastly, the services sector contributes 60.7% to the GDP and employs more than two-thirds of the active population (68%). The information technology and communications sectors are the most important contributors to the GDP. In recent years, tourism has been one of the fastest-growing sectors of the country's economy. After contracting abruptly following the COVID-19 pandemic, the sector showed signs of recovery in the first half of 2022, when 456,000 foreign tourists visited the country: although still half of the pre-pandemic level, it was four times more than in the same period one year earlier. Moreover, domestic tourism surpassed the pre-pandemic year 2019. The Lithuanian banking sector consists of 18 banks, twelve of which hold a banking or specialized banking license, and six banks operate as branches of foreign banks (European Banking Federation).

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	6.4	25.7	67.9
Value Added (in % of GDP)	3.3	25.3	60.7
Value Added (Annual % Change)	-11.7	8.6	5.8

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:

76,9/100

World Rank:

15

Regional Rank:

8

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:

6.94/10

World Rank:

31/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Sources of General Economic Information

Ministries

Ministry of Economy
Ministry of Finances

Statistical Office

Department of Statistics

Central Bank

Central Bank of Lithuania

Stock Exchange

Nasdaq Nordic

Economic Portals

Baltic Times
Delfi