Baltic: Lithuania outperforms the region
Executive summary
The economies in the Baltic region are expected to return to growth in 2025, although the pace will be more sluggish for Estonia and Latvia than previously anticipated. Lithuania’s pace of growth this year will be around three times larger.
Inflation remains stable at or below target levels in Lithuania and Latvia, while Estonia is projected to converge to 2% by 2026.
Unemployment has increased in Estonia, whereas the job markets in Lithuania and Latvia have remained stable. Wage growth is expected to moderate this year.
The retail and industrial sectors are performing best in Lithuania. However, these sectors continue to face challenges in Estonia and Latvia.
Economic sentiment is the highest in Lithuania, being above the EU average and still trending upwards. Consumer sentiment is also most positive in Lithuania, though it remains deeply negative in Estonia.
Budget deficits in the Baltic countries are expected to be around 3% of GDP, heavily influenced by defense spending.
S&P downgraded the credit ratings of all three countries last year, with Estonia requesting the withdrawal of its rating at the end of 2024.
Despite poor economic performance, Estonia leads the region in Social Development Goals. The RRF funds are expected to finance further improvements in SDGs, but governments need to accelerate their efforts as the 2026 deadline approaches.
Author
Erste Bank Research Team
Erste Bank
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