Labour productivity in Lithuania’s market sectors rose from around 25% of the level of Germany in 2000 to 50% in 2022, outpacing several regional peers. Lithuania is thus progressively catching up with Western European productivity levels, but a gap remains. While labour participation has increased significantly over the last decade, unemployment remains high in international comparison, especially for older-age workers. The working-age population is expected to decline significantly over the next years due to ageing. Therefore, boosting productivity growth and mobilising all available labour resources will be key to further improving living standards.

While product market regulations are the least restrictive in the OECD, the productivity benefits could be further enhanced by developing capital markets to alleviate firms’ financial constraints, improving health conditions, encouraging R&D investment by businesses, ensuring that adult learning is efficient, strengthening secondary VET education, and expanding the rail network.

GDP growth has picked up in 2024 and is expected to continue in 2025-26, driven by a rebound in private consumption and a progressive increase in exports.

Financing increasing ageing-related costs without endangering fiscal sustainability will require creating additional fiscal space. This could be achieved through a mix of policies aiming at improving public spending efficiency, broadening the tax base and encouraging formal economic activity.

While Lithuania’s product market regulations and insolvency framework are among the most conducive to productivity growth in the OECD, possible ways to further support productivity growth include developing domestic capital markets and further strengthening the public integrity framework.

Greenhouse gas emissions have hardly declined since 2000 and energy supply is highly dependent on imports. Accelerating the green transition will be key to improve energy security and reach emission targets. This will require additional financing for renewable energy sources and inverting the current upward trend in transport emissions.

Lithuania will face a major demographic shock, requiring policy responses across many areas including labour markets, pensions and health. Ensuring that net immigration remains positive would partly alleviate labour shortages and the related impact on growth and export performance. Encouraging the use of private pension schemes, further rationalising the hospital network and promoting healthier lifestyles would help contain upward pressures on ageing-related costs.

SPECIAL FEATURE: ADRESSING DEMOGRAPHIC CHALLENGES

Further reading

• Lithuania: Addressing demographic challenges | Blog
  
• Press release | Communiqué de presse | Pranešimas spaudai
• Read the survey and access previous releases