Economic Outline

Economic Indicators

As a member of the EU since 2004, Lithuania has experienced significant growth coupled with the rapid modernization 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 fueled 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. After growing 1.9% in 2022, real GDP is estimated to have contracted by 0.3% in 2023 according to the EU Commission. Despite notable capital investments and a rapid slowdown in inflation, economic recovery faced delays due to subdued private consumption, weak exports, and tightening financing conditions. Specifically, exports of goods, especially in the chemical, plastic, wood, and furniture sectors, continued to suffer from sluggish global demand, although exports in services showed signs of improvement. Economic growth is projected to rebound to 2.1% in 2024 and further accelerate to 3% in 2025 (EU Commission), driven by the absorption of EU funds. Recently, the European Commission and the Council endorsed Lithuania's revised Recovery and Resilience Facility (RRF) plan, featuring a new EUR 1.55 billion loan component and extra funds for renewable energy investments. The revised plan now totals EUR 3.85 billion, equivalent to 5.2% of GDP, nearly double the size of the initial RRF plan.

Macroeconomic indicators are generally positive, having recorded budget surpluses before the pandemic. Nevertheless, the budget turned negative since then: in 2023, it was in deficit by 1.7% of GDP (IMF) and Fitch predicts a renewed widening of the general government deficit to 2.5% of GDP in 2024 stemming from the fiscal impact of permanent measures aimed at safeguarding real incomes. The 2024 draft budget anticipates increased public sector wages, social benefits, and a raised threshold for non-taxable income. The general government debt declined to 36.1% of GDP by the end of 2023 (from 38.1% one year earlier, IMF). However, a renewed fiscal deterioration is projected to cause debt levels to increase to 38.5% of GDP by the end of 2024 and further to 41.3% by the end of 2025 according to Fitch Ratings (the IMF has a more positive outlook, with the debt contracting to 33% by 2025). Following a peak of 18.9% in 2022, HICP inflation eased to 9.3% in 2023. This moderation was driven by negative growth in energy prices during the second half of 2023, alongside a continued deceleration in the prices of food and manufacturing products. Inflation is projected to remain slightly above the 2% target, at 3.9% this year and 3% in 2025 (IMF).

The labor market demonstrated resilience during 2023, witnessing a downward trend in unemployment and rising employment figures, attributed to a growing number of self-employed individuals and individuals fleeing conflict in Ukraine. Wage growth remained robust, propelled by increases in minimum wages, public sector wages, and the persistently tight labor market conditions. Wage growth is expected to remain significant in 2024 due to the tight labor market and expected minimum wage increases.  (EU Commission). The World Bank estimated the country’s GDP per capita (PPP) at USD 48,397 in 2022 (10.7% lower than the EU average); however, according to the latest figures released by Statistics Lithuania, around 24.5% of the population is at risk of poverty.

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