Lithuania’s GDP to grow by 2.8% next year, fastest in Baltics – Swedbank Economic Outlook

Lithuania’s GDP should expand by 2.8% next year, after rising to 2.2% in the second half of this year, according to Swedbank Economic Outlook published on Tuesday. It will be the largest growth among the Baltic States, predicts Nerijus Mačiulis, the bank’s chief economist.

The bank revised its earlier growth projection for Lithuania upwards by 0.4%, forecasting the second largest growth in the region, after Poland.

According to Swedbank, household consumption will remain the main driver of growth. Markets are also bracing themselves for the European Central Bank’s (ECB) plans to cut key interest rates by the end of 2024.

„We are seeing strong growth in purchasing power and a recovery in retail sales. Unlike in many other EU countries, Lithuanian industry is also recovering, with growth rates recorded in almost all of its sectors,“ Mačiulis told a press conference on Tuesday.

„This year we are witnessing a phenomenon never seen before – consumer expectations in Lithuania are among the highest in the EU,“ he said.

However, a rapid recovery in exports should not be expected as the level of export orders remains below its long-term historical average, according to Mačiulis.

The bank forecasts average annual inflation to accelerate to 2.9% in 2025 from 0.9% this year, as a result of rising commodity prices and higher prices of services due to transport and natural resources

Average wage growth should slow slightly to 8.2%, outpacing price growth by roughly three times, the bank said.

Swedbank forecasts that the unemployment rate will be 7.4% this year, some 2 percentage points above the trough reached in 2022

„The Lithuanian economy has managed to avoid a deeper fallout thanks to timely public investments in defence and infrastructure (mainly roads and electricity infrastructure). These investments have boosted the construction sector but may also have helped to improve business confidence. Although private-sector investments fell in the first quarter of this year, we still see overall investment growth accelerating to 6.5% next year. The loan portfolio to non-financial corporations is now 10.1% higher than it was a year ago, showing both willingness and ability to increase financial leverage (Lithuania’s corporate debt-to-income ratio remains among the lowest in the EU),“ Swedbank said in its Economic Outlook.