OECD Economic Outlook, Volume 2026 Issue 1

Lithuania

GDP growth is projected to remain resilient at 2.8% in 2026 before moderating to 2.0% in 2027, despite the evolving conflict in the Middle East. Growth will be supported by private consumption and defence spending. Consumers will benefit from one-off withdrawals from private pension savings in 2026. The labour market remains tight and inflation is set to rise to 5.1% in 2026 due to higher energy prices, before easing in 2027. An intensification of regional geopolitical risks or a prolonged period of high energy prices are the main risks to the outlook.

The budget deficit is expected to widen to around 3% of GDP, reflecting rising defence and pension spending. Fiscal consolidation will be required in the years ahead, alongside a clear tax and spending strategy, to keep debt relatively low. Keeping energy support measures temporary, while improving their targeting to low-income households, would enhance policy effectiveness. Deepening capital markets would ease firms’ financing constraints and support productivity growth.

Economic activity remained solid into early 2026

GDP increased by 2.9% in 2025, supported by strong investment and exports, but flash estimates indicate that output might have declined in the first quarter of 2026. Consumer sentiment improved during the second half of 2025 but subsequently deteriorated in early 2026. Unemployment stood at 6.5% in March 2026, below its long-term average. Core inflation has remained stable since early 2025, but headline inflation, already elevated, rose to 5.1% in May, owing largely to higher energy prices. The labour market remains tight, with high vacancies supporting strong wage growth.

Lithuania

1. Harmonised index of consumer prices excluding food, energy, alcohol and tobacco.

Source: OECD Consumer Prices database; and OECD National Accounts database.

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Lithuania: Demand, output and prices

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Lithuania is dependent on imported energy, although direct imports of oil and gas from the Middle East are limited. Supply risks have been mitigated by broadening the range of oil import sources and developing the capacity to import liquefied natural gas. The recent expansion of domestic renewable electricity generation, combined with the diversification of electricity imports through new electric interconnections, has strengthened energy security. Temporary measures to alleviate the impact of rising energy costs on households include a reduction of the diesel excise tax and of domestic train ticket fares.

Fiscal policy is becoming more accommodative

The fiscal stance eased in 2025 and will ease further in 2026. Overall fiscal support to the economy is expected to decline in 2027 as NGEU grant-financed spending is phased out. The general government deficit is projected to widen from 1.8% in 2025 to 2.7% in 2026 and 3.3% in 2027, mainly due to higher expenditures on pensions, public wages and defence. Defence spending is set to rise from 3.1% of GDP in 2025 to almost 4% in 2027. The reduction in excise duties for diesel and in public transport fares is expected to remain time limited as legislated, offsetting higher VAT revenues from increased energy prices. General government debt is projected to increase from 40.4% of GDP in 2025 to 43.5% in 2027.

Household consumption will support growth despite higher inflation

GDP growth is expected to remain resilient at 2.8% in 2026 before slowing to 2.0% in 2027, despite higher energy prices. The government has opened a window for Lithuanians to withdraw cash from their private pension saving accounts in 2026-27, which will temporarily boost consumption in 2026, but weaken the adequacy of the pension system in the long term. At the same time, private investment is projected to weaken amid heightened uncertainty and tighter financing conditions, before recovering later in the year. The unemployment rate is projected to continue declining, despite weakening employment, as the labour force shrinks. Headline inflation is expected to rise to 5.1% in 2026 before settling at 3.0% in 2027, reflecting energy price developments and the high share of energy in the consumption basket. Core inflation will pick up, reaching 3.3% in 2026 and 3.8% in 2027. Stronger than expected inflation persistence and regional geopolitical tensions are major risks to the outlook.

Structural reforms would improve fiscal sustainability, support productivity and enhance domestic energy security

Fiscal consolidation is required from 2027 to avoid overheating the economy and keep the debt-to-GDP ratio low, together with a strategy to manage long-term pressures from ageing, defence and the climate transition. Key policies include improving the efficiency of public spending, mobilising additional tax revenues and formalising informal economic activity. Government energy support should be made more targeted and timebound as well as designed so as to maintain energy saving incentives. Measures to strengthen energy security and resilience are crucial for Lithuania’s medium- to long-term growth. Developing more long-term project pipelines for project investors would foster private investment in renewable energies, while greater efforts should be made to encourage energy efficiency improvements. Boosting productivity growth through deeper capital markets, reformed pension fund rules, and better financial literacy can offset the economic drag of population ageing while curbing corruption and supporting investor confidence.