Baltics enter a stronger 2026

The Baltic economies are emerging from a period of uneven performance, with Lithuania showing resilience in 2025 while Estonia and Latvia only beginning modest recoveries after extended contractions. Growth momentum is expected to strengthen considerably in 2026 across all three economies, with projections placing them above the EU average before converging toward 2% by 2027. Investment activity, supported by lower borrowing costs, substantial EU and RRF funding, and rising defense spending, plays a central role in driving the expansion in Latvia and Lithuania, while consumption dynamics differentiate the region. Inflation is projected to cool significantly, although each country faces unique pressures, from Estonia’s VAT-driven spike to Latvia’s energy costs and Lithuania’s excise adjustments. Labor markets remain relatively loose compared to the EU, yet wage growth is strong due to minimum wage hikes, tax reforms, and structural demographic challenges.

Exports, industrial output, and retail performance diverge across the region, with Lithuania consistently outperforming its neighbors in both long-term industrial production and services-driven export growth. Estonia continues to struggle with retail and industry remaining below pre-invasion levels, whereas Latvia showed promising momentum in late 2025. Fiscal pressures intensify as all three countries face rising deficits and public debt through 2027, largely reflecting increased defense commitments and major infrastructure projects such as Rail Baltica. Despite this, each country maintains moderate to substantial fiscal space. RRF utilization varies, with Estonia surpassing the 50% threshold, Latvia progressing steadily, and Lithuania awaiting further disbursements. At the same time, all three Baltic states are advancing large-scale green transition projects, including wind farms, hybrid renewable parks, and regional integration through Rail Baltica; initiatives expected to support long-term sustainability and strengthen economic resilience.

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