„Due to the withdrawal of funds from pension funds and increased government investment, economic growth should accelerate next year, though this is more of a temporary boost than a new trend. It is important to be cautious and prepared for a possible slowdown in 2027. In the challenging external environment, it is particularly important to maintain fiscal discipline so that we have sufficient room to respond to unexpected shocks in the future,“ says Gediminas Šimkus, Chair of the Board of the Bank of Lithuania.
The Bank of Lithuania projects that the country’s gross domestic product will grow by 2.5% this year, 0.2 percentage points less than projected in September. The economy is expected to grow by 3.2% in 2026, by 2.3% in 2027, and by 3.0% in 2028.
Fluctuations in economic growth over the projected period will be mainly driven by the second-pillar pension scheme reform. This is expected to lead to significantly higher private consumption next year, however growth is likely to decelerate in 2027 as most of the withdrawn funds will already have been spent. Another wave of withdrawals is expected to come at the end of 2027, which will boost the economy in 2028.
It is rather sluggish private consumption that has recently dampened Lithuania’s economic growth. This year, private consumption is expected to grow by a mere 2%, however in 2026, when the economy will receive about EUR 1.2 billion in funds withdrawn from pension funds, consumption growth should accelerate to 5.0%.
After such short-term spending spree, during which some residents will use up their retirement savings, private consumption growth will shrink to just 0.4% in 2027. The second wave of withdrawals from pension funds is expected to reach the economy in 2028, with about EUR 0.5 billion to be spent for consumption and its growth rate to increase to 4.8%.
The economy will also be stimulated by other government decisions, though their impact will be rather moderate. Of these, government decisions on investments, mainly in the defence sector, will have the greatest impact in 2026, although more funds are earmarked also for the road sector. The positive impact of investments, including business investment, will be seen also in subsequent years.
The Bank of Lithuania projects that investments, which will increase by 6.5% this year, will grow by as much as 11.5% next year. In 2027, growth will slow down to 3.6%, and in 2028, it should grow by 4.1%.
Export development will be less favourable, as it is still constrained by the noticeably slower growth in demand among Lithuania’s main trading partners. The increasingly competitive environment, particularly for undertakings in the manufacturing sector, will not allow for more active increase of market shares abroad.
Lithuania’s total exports are expected to grow by 4.3% this year, by a mere 2.3% in 2026, and by 3.3% in both 2027 and 2028.
The situation in the labour market is stabilising, with no significant changes in the number of employed and unemployed persons in the coming years, and wage growth gradually returning to a more sustainable level. The unemployment rate, which will reach 7.0% this year, is expected to decline to 6.6% in 2026 and to 6.5% in 2027 and 2028.
Average wages are expected to increase by 8.4% this year, and their growth will accelerate to 9.1% in 2026 due to higher economic activity. As the economy slows down, wages will also rise more slowly and will fluctuate around 7% in 2027 and 2028.
Wages will outpace inflation throughout the projected period, hence the real purchasing power of the Lithuanian population will increase.
Average annual inflation is expected to reach 3.5% this year, however it will subsequently decline steadily and will return, by the end of the projected period, to a level typical of economies approaching living standards in the Western countries. Inflation is expected to amount to 3.1% in 2026 and should decline to 2.6% and 2.5% in 2027 and 2028, respectively.