Lithuania’s economy continues to show resilience despite a challenging global and regional environment, according to a recent report from the Bank of Lithuania, which warns, however, that growing risks could dampen the outlook if not properly managed.
In its latest economic review, the central bank acknowledged that while Lithuania avoided a major contraction in 2024 and even recorded moderate growth, the country faces several external and domestic vulnerabilities that could slow progress. These include continued geopolitical instability, rising borrowing costs, and weakening external demand for exports.
“The Lithuanian economy has performed better than expected, but the global context remains volatile,” said Gediminas Šimkus, Chairman of the Bank of Lithuania. “We must remain cautious and implement policies that ensure stability while supporting long-term competitiveness.”
The report noted that Lithuania’s GDP grew by 1.6% in the first quarter of 2025, driven largely by household consumption, an improving labor market, and resilient public investment. Inflation, which had peaked in 2022 and 2023, has now cooled significantly, allowing purchasing power to stabilize and consumer confidence to rebound modestly.
However, the central bank flagged several emerging concerns. The most pressing among them is external demand, particularly from Germany and other key EU partners, which has weakened amid broader signs of economic stagnation across Europe. Lithuania’s export-oriented sectors, especially manufacturing and transport, are feeling the pressure from reduced orders and tighter competition.
Additionally, the central bank warned of the impact of higher interest rates on both consumers and businesses. With the European Central Bank maintaining a tight monetary stance to contain inflation across the eurozone, borrowing costs in Lithuania have risen accordingly. This has led to slower credit growth, especially in the real estate and construction sectors.
Despite these headwinds, Šimkus stressed that Lithuania’s macroeconomic fundamentals remain strong. Public debt remains among the lowest in the EU, unemployment is at historically low levels (below 6%), and the country has maintained its fiscal commitments while investing in strategic sectors such as energy security and digital infrastructure.
The Bank of Lithuania emphasized the importance of structural reforms, including improving labor productivity, streamlining business regulation, and accelerating green and digital transitions. Policymakers were urged to focus on long-term competitiveness, especially as EU recovery funds continue to be allocated.
A significant portion of Lithuania’s economic stability has also been attributed to its rapid diversification of energy sources. Following Russia’s invasion of Ukraine in 2022, Lithuania moved swiftly to reduce its dependence on Russian gas and oil, investing heavily in LNG infrastructure and renewable energy. These efforts have paid off, insulating the economy from the worst of Europe’s energy crisis.
At the same time, the central bank acknowledged that security concerns continue to loom large. With Russia’s war in Ukraine showing no signs of abating, Lithuania has maintained elevated defense spending and is facing increased public demand for security-related investments. This has added pressure to government finances, but is broadly supported by political consensus and international allies.
In terms of inflation, the Bank of Lithuania forecasts a moderate annual rate of 2.9% for 2025, with core inflation remaining under control. Wage growth, which outpaced inflation last year, is expected to stabilize, further supporting household consumption.
The report concluded with a cautiously optimistic tone. While Lithuania’s economy is not immune to external shocks, it is better positioned than many of its peers to navigate ongoing challenges. The central bank urged policymakers, businesses, and households to remain vigilant, flexible, and forward-looking as the country steers through an unpredictable economic landscape.
“Resilience is not automatic,” Šimkus warned. “It is the product of deliberate decisions, fiscal discipline, and strategic investment. That must remain our course.”
Source: LRT English
