Lietuvos Bankas‘ narrative projects that the Lithuanian GDP will grow by 2.2% this year, while the projections for 2025 and 2026 the economy is expected to grow by 3.1% and 3.3% respectively.

The overall economic growth is currently largely driven by the services sector, with ICT standing out as its growth has been outpacing that of the entire economy for some time now. In the first half of 2024, this industry accounted for around a quarter of overall economic growth.

Professional, scientific, administrative and support services have also contributed quite significantly to overall economic development. Although to a lesser extent than many other activities, manufacturing, which contracted significantly in 2023, is bolstering economic activity. Currently, the situation in all major manufacturing industries has improved or at least has largely stopped deteriorating, compared with the situation a year ago.

Private consumption has had an important impact on economic growth given a slower recovery of global markets, in particular the euro area. Consumption has been rising sharply for about a year now and is already close to its peak recorded before the surge in inflation caused by the energy price shock. Its further growth will be supposedly helped by a favourable labour market situation, lower inflation and positive household sentiment.

Real private consumption, which contracted by 1% in 2023, is projected to increase by 3.6% this year and 3.7% both in 2025 and 2026.

Lithuanian exports have been recovering moderately from last year’s recession benefiting from the retained competitiveness. However, foreign demand growth in 2024 has been slower than expected and is projected to be more modest in 2025–2026 than before the COVID-19 pandemic. Total exports are expected to grow by 1.2% this year, 3.1% next year and 3.8% in 2026.

At the same time, investment, which grew by more than a tenth last year, is projected to contract by 3.6% in 2024 but this is thought to be a temporary decline. Thanks to increasing EU support and stronger economic growth, the investment volume is expected to go up by 6.6% next year and 5.1% in 2026.

The labour market situation remains good, but there have been some unfavourable developments. Over the last few months, the total number of persons employed has decreased mainly due to economic activity in the transport sector. The unemployment rate, which started to rise in 2022, has not declined so far either and remains high in nearly all social groups.

The unemployment rate, which stood at 6.8% in 2023, will go up to 7.4% this year. It is expected to fall to 7.1% in 2025 and 6.9% in 2026. Employment is expected to increase by 1.6% this year but is projected to fall by 0.4% and 0.3% in 2025 and 2026 respectively.

The average wage, which rose by 12.6% last year, is projected to go up by 9.8% in 2024 and its growth rate to slow down to 8.5% in 2025 and 8.1% in 2026. Despite the projections, the growth of wages will continue to be faster than in 2010–2020, when wages grew at an average annual rate of 5.5%.

Wage growth is also being held back by labour productivity, which has been stalling for three consecutive years. This productivity trend is underpinned by the sluggish development of exports, commodity prices which remain higher than a few years ago, and the desire to retain existing workers in the expectation that demand will increase eventually.

Magically, average official inflation is projected to be 1% this year as labour market tensions ease and commodity prices stabilise. Inflation is projected to be 2.5% in 2025 and 2.6% in 2026, assuming the dampening effect of prices of energy resources will fade.