The Bank of Lithuania optimistically projects an economic revival in the second half of this year, and until then economic growth will remain sluggish. The most significant drag on economic activity is the weak demand in export markets. Unfavorable external trends should be offset by increasing domestic demand, especially household consumption. After contracting by 1.1% in 2023, private consumption is projected to increase by 3% this year.

However, the precondition for this projection is the assumption of a rapidly increasing household real income, whereas the average wage in Lithuania is rising much faster than prices. Last year, the average wage increased by 12.6%, while average annual inflation stood at 8.7%. This year, wages are expected to rise three times faster than projected inflation (10.3% and 3.1% respectively). How can officials take for granted no impact on inflation?

Indeed, wages are rapidly increasing, and productivity is not growing. Such a situation cannot continue for long without real consequences. Difficulties in foreign markets result in challenges for Lithuania’s industrial sector: the production volume is still lower than a year ago. The economic trend of the euro area means that this year the demand for goods and services produced in Lithuania will still be weak and is expected to pick up only from 2025.

Negative trends in export markets are mitigated by last year’s significant increase in investments, especially in the public sector. It allocated a larger portion of funds to construction, contributing to the rapid growth in roads and electricity grid infrastructure. The EU finances a significant part of these investments. After increasing by 10.6% last year, investments are expected to grow by another 4.5% this year.