Letonia
Polonia
Alemania
Holanda
Rusia
Estados UnidosSustained solid growth in 2025
In 2025, growth is expected to remain strong, well above the eurozone average. It is largely supported by the continued absorption of EU funds (EUR 10.2 billion for the 2021–2027 period, about 15% of GDP, with 45% committed and less than 10% disbursed by the end of 2024). The mainly export-oriented industrial sector (machinery, electrical and electronic equipment, chemicals) which accounts for 46% of GDP has adapted to the loss of the Russian market and continues to contribute positively to the economy. Recent calls to strengthen nearshoring as part of growing reshoring efforts in response to China could also benefit Lithuanian companies. The country's membership in the eurozone facilitates foreign direct investment (FDI) flows, which will support this momentum. Services (63% of GDP) will remain a key pillar of the economy, particularly emerging sectors such as financial services and technology outsourcing, which are expected to grow on back of rising global demand for digitalisation and cloud services. Despite the loss of trade with Russia and Belarus, transport remains a growing sector following the completion of high-speed north-south transport corridors across the Baltic States (Rail Baltica). Road links with Poland and the rest of the EU are also expected to improve.
Continued real wage growth and ongoing easing of European Central Bank (ECB) interest rates provide additional support for private consumption (60% of GDP). Despite a high unemployment rate (6.3% in April 2025), the labour market has remained tight due to the significant structural component of unemployment that causes labour shortages in key sectors. The influx of Ukrainian refugees has only marginally and temporarily eased the pressure. However, inflation is accelerating sharply (4.1% in April 2025 versus 0.7% in 2024) owing to a less favorable comparison base for energy prices than in 2024 and the continued rise in service prices, which is itself fueled by wage increases. Strong consumer demand also adds inflationary pressures, as does the planned VAT increase on accommodation, transport, and culture, which will rise from 9% to 12% in January 2026. Moreover, substantial investment in accumulated corporate savings is giving further momentum to economic activity, while business confidence is improving.
Budget under pressure due to defense spending
The budget will remain in deficit in 2025 due to a sharp increase in military spending (raised to 3% of GDP) and the revival of strategic infrastructure projects, including certain components of the Rail Baltica initiative. On the revenue side, the government relies on the corporate tax rate hike from 15% to 16% in January 2025, as well as the extension (approved in April 2024) of the exceptional tax on bank profits, which had generated EUR 256 million in 2023. In 2026, the government will continue increasing the corporate tax rate (from 16% to 17%). However, these measures will fail to offset the scale of new expenditures. Additionally, income tax reform (January 2025) which exempts minimum-wage earners is expected to reduce the tax base, although it will be partially compensated by greater tax scales on higher incomes. Despite the mixed financing strategy (domestic fiscal resources, European transfers and borrowing), public debt will increase (albeit remaining moderate) due to the prioritisation of security agendas and sustained public investment levels.
The current account is expected to remain broadly stable in 2025, with a slight deficit. It benefits from the resilience of service exports and transfers from the European Union (EU). However, several factors are weighing on it: increased imports of military equipment and dependence on energy imports, capital goods and intermediate products. While exports to the US are limited (about 4% of the total), the furniture and machinery sectors could suffer from weaker global demand. Additionally, Lithuania's indirect exposure through European value chains makes it vulnerable to increases in US tariffs.
Fragile coalition amid a tense geopolitical context
The centre-left Lithuanian Social Democratic Party (LSDP) won the October 2024 election, increasing its parliamentary representation from 13 to 52 seats. It later formed a tripartite coalition with the Union of Left Democrats – For Lithuania (DSVL, moderate left, 14 seats) and the new populist party Dawn of Nemunas (PPNA, 20 seats). Together, the coalition holds a comfortable majority of 86 out of 141 seats. However, its coalition remains fragile, particularly due to the PPNA’s unclear ideology and controversies surrounding its leader, Remigijus Žemaitaitis, who was investigated for antisemitic publications and forced to resign from his Seimas seat in April 2024. The inclusion of PPNA in the government has drawn criticism from President Gitanas Naus?da who was re-elected in May 2024 for a second five-year term, as well as from several Western partners. Furthermore, the Prime Minister is now under investigation, as a company in which he holds a 49% stake may have wrongly benefited from a subsidised public loan. The risk of internal tension remains high. Despite these frictions, the new government maintains a pro-European and pro-business stance. On social issues, it aims to increase family allowances, index pensions to inflation, strengthen efforts against undeclared work, and improve the competitiveness of the electricity market. However, the implementation of these reforms could be slowed by weak coalition discipline and bureaucratic inefficiencies already observed during the previous term.
Internationally, Lithuania remains firmly aligned with Euro-Atlantic positions. Security cooperation with Germany deepened in December 2023 with the signing of a bilateral agreement allowing the permanent stationing of a German brigade (4,800 soldiers) on Lithuanian territory starting in 2025. The brigade was activated in April 2025, marking a significant step in strengthening NATO’s eastern flank. This cooperation adds to the already constructed border fence with Belarus, used by Russia as an influence tool in hybrid warfare. Relations with Moscow and Minsk remain highly hostile, while ties with China have also deteriorated since the opening of a Taiwanese representative office in Vilnius in late 2021. In response, Beijing imposed an unofficial trade embargo, which is still in place in 2025 and limits bilateral exchanges. Amid these tensions, Lithuania has continued efforts to diversify its energy supply through LNG terminals in Klaip?da (national) and Inkoo (Finland), used in cooperation with the other Baltic states.
