Lithuania’s economic development and outlook

2 April 2026

At the beginning of the year, global economic developments were more favourable than expected, but events in the international environment caused greater uncertainty. At the end of last year, global economic growth remained resilient – the adverse effects of trade policy changes and ongoing policy uncertainty were offset by rapidly increasing investment in technology, including artificial intelligence, and looser fiscal and monetary policies. Faster economic growth also led to more intense international trade flows, which had a positive impact on manufacturing indicators in many countries. Higher-frequency data indicated that favourable global economic trends were expected to continue into early 2026. In February, prior to the events in the Middle East, the global Purchasing Managers’ Index (PMI) reached its highest level in the past 21 months, indicating growth in activity across most major economies. Other indicators also pointed to favourable trends – business expectations regarding future production reached their highest level in nearly six months; there was also an increase in new export orders. However, the conflict in the Middle East has significantly increased uncertainty as to whether this positive trend in global economic growth will persist and how seriously it will be affected. One of the most important factors that could influence both the global economy and Lithuanian economy is the supply and prices of energy resources.

The Lithuanian economy closed last year with substantial growth. In 2025, the real gross domestic product (GDP) grew by 2.9%, showing only a slightly slower growth rate than in 2024. It should be noted that by the end of the year, economic activity had nearly reached a long-term growth trend, demonstrating the ability of the economy to adapt to the latest shocks. Last year, value added increased in nearly all economic activities. The key contributors to economic growth were trade and transportation, manufacturing, information and communication, as well as professional services. Activity in these economic sectors was driven by both foreign and domestic demand. Last year, demand for goods and services increased in the key trading partners by about 4%, i.e.at a similar pace as in the decade preceding the COVID-19 pandemic (2011–2019). However, part of this rebound is linked to business efforts in the first months of the year to rush transactions ahead of a potential increase in customs tariffs, while in the second half of the year foreign demand grew more sluggishly. Domestic demand showed mixed trends: household consumption grew more slowly, while investment expenditure, which had previously fallen, increased last year. Household consumption was most constrained by rising inflation and a temporary decline in consumer sentiment. Spending on non-durable goods and services grew noticeably slower than a year ago. Although the consumer confidence is still above the long-term average, consumer expectations regarding the country’s economic situation and unemployment have become more cautious. Meanwhile, after the difficult year 2024, investment rebounded rapidly primarily due to increased spending on means of production, while investment in non-residential buildings and structures also slightly rose. Investment grew in both the private sector and public sector. Investment facilitated rise in labour productivity, which significantly contributed to economic growth. Labour productivity growth has picked up and once again is approaching a long-term growth trend.

The situation in the labour market remains favourable for workers, but demographic trends create tensions. In 2025, wages continued to rise noticeably faster than prices, but the pace of growth slowed and stood at 8.4%. This is the smallest wage increase in nearly a decade. Wage trends are affected by changing corporate financial capacities – the labour share in 2025 was the highest since the beginning of publication of data. Nevertheless, further wage growth is supported by strong labour demand – in most economic activities the vacancy rate exceeds the long-term average. The strong demand for labour is also reflected in the unemployment rate, which was below 7.0% in 2025. Changing demographic trends also put pressure on labour demand. After several years of growth, the labour force – the number of the employed and job seekers – did not increase last year. This is linked to lower net international migration, halted growth of the working-age population and a stopped increase in labour force participation rate. Such labour force trends also affect the number of the employed, which last year declined for the first time since 2021.

In the coming years, economic fluctuations will be significantly affected by ongoing reforms, rising general government expenditure and developments in the international environment. According to the baseline scenario, Lithuania’s real GDP is projected to grow by 3.1% this year, and by 2.0% and 2.9% in 2027–2028 respectively. These fluctuations in activity will be most influenced by the newly available possibility of withdrawing funds from the second-pillar pension accumulation funds (SPPAF), which will increase the disposable funds of the population. This year, households are projected to spend a significant portion of the withdrawn funds on goods and services, accelerating economic growth. By 2027, the positive impact of the funds previously withdrawn from the SPPAF is expected to fade, and economic growth is projected to slow at that time. In subsequent years, economic growth will return to a more normal trajectory, and any further withdrawals from the SPPAF will have only a limited impact. This year, the growth will also be more strongly driven by a significant increase in certain general government expenditure, specifically investments related to defence needs, as well as other investments. Unlike the factors mentioned above, foreign demand, which rose significantly last year partly due to intensified stockpiling ahead of the implementation of higher custom tariffs, is projected to grow at a slower pace in 2026, thus limiting export growth. Notably, according to the baseline scenario it is assumed that the impact of events in the Middle East on Lithuania’s foreign demand will not be significant, and that the surge in energy prices will be relatively short-lived. The impact of these factors on Lithuanian economic activity is therefore expected to be fairly limited.

The conflict that has erupted in the Middle East is changing the outlook for inflation; this year it will be higher than last year, with higher energy prices being the main factor. Annual inflation, which had been falling steadily, reaching 2.8% January, is rising again. It is projected to remain on an upward trend in the coming months and amount on average 5.1% this year. The increase in inflation will be driven primarily by energy prices, which are dictated by a significant rise in the cost of energy resources. At the beginning of the year, electricity and gas prices increased due to greater demand caused by a cold winter, but now the main factor behind the surge in prices of energy resources is the conflict in the Middle East. Higher energy costs will also have impact on the prices of other goods and services. Regardless of the increase in energy costs, food prices, including prices of alcoholic beverages and tobacco, will rise more slowly this year, as the supply of food commodities has begun to normalise in recent months. Overall, this year average annual inflation will be significantly driven by indirect taxes increased in January, which will account for about one-fifth of average annual inflation. The withdrawal of funds from the SPPAF will also contribute to the overall rise in prices; it will stimulate economic activity and, as a result, demand-driven inflation. In the following years, average annual inflation will decline, reaching 3.0% in 2027 and 2.5% in 2028, mainly due to falling energy prices, lower tax increases and slower growth of wages.

However, the future course of events in the Middle East is surrounded by significant uncertainty; an escalation of the conflict could affect Lithuania’s economic development more than projected in the baseline scenario. According to the latter scenario, disruptions in energy supply are assumed to continue until the third quarter of 2026. It is also assumed that there will be no additional major damage to the infrastructure of extraction and supply of energy resources. According to the adverse scenario, disruptions in energy supply are assumed to continue until the fourth quarter of 2026, while the infrastructure of extraction and supply of energy resources is assumed to suffer significant additional damage. If the case of the events projected in this scenario, prices in Lithuania would rise more, and the economic activity would be more affected: in 2026–2028, inflation in Lithuania would be cumulatively 2.3 percentage points higher than projected in the baseline scenario, while the real GDP growth would be cumulatively 0.8 percentage points lower.