Lithuania demonstrates the highest economic growth in the Baltics

Lithuania’s economy will grow the fastest, and Latvia is also expected to grow. Although at the end of the year GDP will also begin to grow in Estonia, overall economic growth for the year will be negative, the bank’s press service reported.

According to Luminor chief economist Lenno Uusküla, GDP growth rates in 2023 were below potential in all three Baltic countries due to the crisis. The decline in the economies of Latvia and Lithuania in 2023 was 0.3% compared to 2022, and in the economy of Estonia – 3.1%.

“This year, economic indicators are expected to improve – growth in Lithuania will be 2%, in Latvia – 1.2%. Although the Estonian economy will also begin to grow in the second half of the year, GDP this year will be at -1%, since last year’s decline persisted throughout the year,” Uuskula said.

According to him, economic growth can be expected to accelerate in both Estonia and Latvia next year. Lithuania is also on track for growth, although it has slowed somewhat compared to this year. Estonia’s growth forecast is 3%, Latvia – 3.3%, Lithuania – 1.8%.

Inflation in the Baltics in 2024 is expected to be lower than in the eurozone as lower commodity prices weigh on consumer prices, with Luminor even forecasting price declines in Latvia and Lithuania. In Estonia, prices are expected to rise by an average of 3% throughout the year, mainly due to tax changes this year.

“Inflation rates in the three countries in our region are highly dependent on global energy and food prices. With previous high costs already reflected in prices, the inflation rate is currently below eurozone levels, excluding local conditions,” Uusküla said. – Commodity Prices , as expected, are already declining, but prices for services are rising due to slow adjustments and rising wages.”

In 2025, Luminor predicts a similar (1% and 0.7% respectively) increase in consumer prices in Estonia and Latvia. In Lithuania, the Estonian scenario might be repeated this year, and prices might rise by 3% due to planned tax changes.

In 2023, nominal wage growth in the Baltic countries will be double-digit, ranging from 11.4 to 12.2%. Estonia will still have the highest incomes, but its southern neighbors will move closer to it thanks to higher growth rates.

“In 2024, wage growth is expected to reach 7% in Estonia, 7.8% in Latvia, and 8.6% in Lithuania. Next year, wage growth is expected to outpace inflation, with incomes rising once more in Latvia and Lithuania will be slightly faster than Estonia,” Uusküla said.

Speaking regarding the prospects for the Baltic economies, the chief economist of Luminor noted that the positive thing is that exports of services are on the rise and will continue to grow in the future. European Union funds also stimulate domestic demand and consumer purchasing power increases.