OECD Economic Outlook, Volume 2025 Issue 1

Lithuania

GDP is projected to grow by 2.7% in 2025 and 2.4% in 2026, after 2.8% in 2024. Strong real wage gains will continue supporting private consumption, especially in 2025. After a decline in 2024, investment is expected to increase progressively, supported by improved financial conditions and higher capacity utilisation but hampered by trade policy uncertainty. Despite a negative carry-over in 2025, exports are expected to increase moderately, but economic activity in the euro area is a key risk for Lithuania, along with global energy prices and geopolitical tensions.

The fiscal stance is expected to loosen over 2025-26. Nevertheless, creating additional fiscal space will be key to financing rising ageing-related spending as well as defence spending. Moreover, deepening capital markets will be essential for alleviating the financial constraints that many firms are facing, and supporting investment and productivity growth. Further strengthening the public integrity framework would also support investor confidence.

Economic activity has continued to strengthen

GDP increased by 2.8% in 2024 as a whole and by 0.6% in the first quarter of 2025, largely supported by strong real wage growth and private consumption. Nevertheless, investment declined amid low capacity utilisation and subdued business confidence, especially in services. Consumer confidence remains high but has been declining since the end of 2024. Headline inflation bottomed out in October 2024 and reached 3.6% in April 2025, amid higher food and energy prices. While immigration helped to alleviate some labour shortages, the labour market is tight, with vacancies at a high level and contributing to strong wage growth. Unemployment, at 6.4% in March 2025, is below its long-term average.

Lithuania

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

2. Total economy.

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

Statlink

Lithuania: Demand, output and prices

Statlink

While only 4% of Lithuanian exports are directly shipped to the United States, Lithuanian firms are integrated into global value chains which ultimately serve the US market. Higher US tariffs on EU goods will thus indirectly weigh on Lithuania through reduced activity in the European Union, which accounts for 60% of total Lithuanian exports.

Fiscal policy is becoming more accommodative

Financing conditions, measured by long-term interest rates, have improved compared to a year ago and are expected to stabilise, as the spread vis-à-vis German benchmarks settles around 0.7 percentage points, down from 2.2 percentage points when inflation peaked. The fiscal deficit is expected to increase further from 1.3% in 2024 to 3.0% in 2025 and 2026. The main factors contributing to a higher headline deficit in 2025-26 than in 2024 are related to pension benefits and public wages. The State Defence Council, comprising Lithuania’s political and military leaders, recently agreed to raise defence spending to 5-6% of GDP annually over 2026-30, up from 3% in 2025. While Parliament still needs to approve this plan and clarify financing, and budget cuts are envisaged in non‑defence ministries, the increase in defence spending may raise the 2026 fiscal deficit beyond the current projection.

Private consumption will continue to support growth

GDP is projected to increase by 2.7% in 2025 and 2.4% in 2026. Sustained real wage gains and a lower saving rate will continue supporting private consumption, especially in 2025. Investment is expected to rebound progressively. While lower long-term interest rates and higher capacity utilisation will support investment, trade policy uncertainty is likely to hamper it. Exports are projected to pick up but will remain closely connected to external demand from Lithuania’s main trading partners. Economic activity in the euro area is thus a key risk for Lithuania, along with global energy prices and geopolitical tensions.

Structural reforms would improve fiscal sustainability and support investment

Lithuania will face a major demographic shock that will increase pension-related costs, with high old-age poverty and low life expectancy for men making it difficult to contain these pressures. In this context, creating additional fiscal space will be needed to ensure fiscal sustainability. This will require improving the efficiency of public spending, increasing tax revenues and encouraging formal economic activity. Strengthening productivity growth will sustain living standards despite population ageing. While Lithuania’s product market regulations and insolvency framework are among the most conducive to productivity growth in the OECD, many firms are facing financial constraints. The development of capital markets would support productivity growth by facilitating investment in intangibles, research and development, and technological innovation. This requires increasing the supply and demand of non-bank capital, including by mobilising institutional investors such as pension funds, leveraging digital financing, and listing a wider range of state-owned enterprises. Further strengthening the public integrity framework, including by systematically monitoring the post-public employment activities of high-ranking public officials and reinforcing leadership support for integrity measures in public institutions, would also limit perceived corruption and support investor confidence.