Lithuania: Economic and Political Overview

Economic Indicators

As a member of the EU since 2004, Lithuania has experienced significant growth coupled with the rapid modernization of its economy, becoming a member of the OECD in 2018. The country experienced the fastest recovery in Europe from the 2009 financial crisis, partly fueled by a well-performing banking system and a diversified industrial sector; and it was one of the best-performing countries during the COVID-19 pandemic. After growing 1.9% in 2022, real GDP is estimated to have contracted by 0.3% in 2023 according to the EU Commission. Despite notable capital investments and a rapid slowdown in inflation, economic recovery faced delays due to subdued private consumption, weak exports, and tightening financing conditions. Specifically, exports of goods, especially in the chemical, plastic, wood, and furniture sectors, continued to suffer from sluggish global demand, although exports in services showed signs of improvement. Economic growth is projected to rebound to 2.1% in 2024 and further accelerate to 3% in 2025 (EU Commission), driven by the absorption of EU funds. Recently, the European Commission and the Council endorsed Lithuania's revised Recovery and Resilience Facility (RRF) plan, featuring a new EUR 1.55 billion loan component and extra funds for renewable energy investments. The revised plan now totals EUR 3.85 billion, equivalent to 5.2% of GDP, nearly double the size of the initial RRF plan.

Macroeconomic indicators are generally positive, having recorded budget surpluses before the pandemic. Nevertheless, the budget turned negative since then: in 2023, it was in deficit by 1.7% of GDP (IMF) and Fitch predicts a renewed widening of the general government deficit to 2.5% of GDP in 2024 stemming from the fiscal impact of permanent measures aimed at safeguarding real incomes. The 2024 draft budget anticipates increased public sector wages, social benefits, and a raised threshold for non-taxable income. The general government debt declined to 36.1% of GDP by the end of 2023 (from 38.1% one year earlier, IMF). However, a renewed fiscal deterioration is projected to cause debt levels to increase to 38.5% of GDP by the end of 2024 and further to 41.3% by the end of 2025 according to Fitch Ratings (the IMF has a more positive outlook, with the debt contracting to 33% by 2025). Following a peak of 18.9% in 2022, HICP inflation eased to 9.3% in 2023. This moderation was driven by negative growth in energy prices during the second half of 2023, alongside a continued deceleration in the prices of food and manufacturing products. Inflation is projected to remain slightly above the 2% target, at 3.9% this year and 3% in 2025 (IMF).

The labor market demonstrated resilience during 2023, witnessing a downward trend in unemployment and rising employment figures, attributed to a growing number of self-employed individuals and individuals fleeing conflict in Ukraine. Wage growth remained robust, propelled by increases in minimum wages, public sector wages, and the persistently tight labor market conditions. Wage growth is expected to remain significant in 2024 due to the tight labor market and expected minimum wage increases.  (EU Commission). The World Bank estimated the country’s GDP per capita (PPP) at USD 48,397 in 2022 (10.7% lower than the EU average); however, according to the latest figures released by Statistics Lithuania, around 24.5% of the population is at risk of poverty.

Main Sectors of Industry

Agriculture contributes 4% to the GDP and employs 5% of the workforce (World Bank, latest data available). Lithuania's main agricultural products are wheat, wood, barley, potatoes, sugar beets, wine, and meat (beef, mutton, and pork). Arable land and permanent crops cover 2 million hectares, more than one-third of the country’s territory. According to the latest figures from the national statistical office, in 2022, agricultural production reached EUR 4.6 billion, marking a 4.8% increase from 2021. Crop production surged by 6.4%, driven by a notable increase in leguminous plants (39.1%) and cereals (5.3%). Animal production also rose by 1.7% compared to the previous year.

The industrial sector accounts for 25.7% of GDP, employing around 26% of the active population. The subsectors are electronics, chemical products, machine tools, metal processing, construction material, household appliances, food processing, light industry (including textile), clothing, and furniture. The country is also developing oil refineries and shipyards. The World Bank estimates that the manufacturing sector alone contributes to 16% of the country’s GDP. In 2022, industrial production sales amounted to EUR 38.4 billion at current prices. Compared to 2021, industrial production at constant prices rose by 9.5%, with mining and quarrying, as well as manufacturing, increasing by 7.9%. Sales to non-Lithuanian markets constituted 62.5% of the total production sold (data Official Statistics Portal).

Lastly, the services sector contributes 61.2% to the GDP and employs more than two-thirds of the active population (69%). The information technology and communications sectors are the most important contributors to the GDP. In recent years, tourism has been one of the fastest-growing sectors of the country's economy. The Lithuanian banking sector consists of 18 banks, twelve of which hold a banking or specialized banking license, and six banks operate as branches of foreign banks (European Banking Federation). Data from the national statistical office show that, in 2022, turnover (excluding VAT) for transportation and storage enterprises amounted to EUR 18.4 billion at current prices, marking a 23.3% increase from 2021. The most significant growth occurred in air transport (93.7%) and land transport and transport via pipelines (24.5%). Accommodation enterprises saw a substantial surge in turnover, reaching EUR 322.9 million in 2022, representing a 68% increase compared to the previous year. Service enterprises experienced a turnover of EUR 18.9 billion in 2022, reflecting an 18.3% increase compared to 2021.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	5.1	25.8	69.1
Value Added (in % of GDP)	2.7	24.2	63.1
Value Added (Annual % Change)	-2.7	-1.4	1.3

Source: World Bank - Latest available data.

 

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Monetary Indicators	2016	2017	2018	2019	2020
Euro (EUR) - Average Annual Exchange Rate For 1 MUR	0.03	0.03	0.02	0.03	0.02

Source: World Bank - Latest available data.

 

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:

76,9/100

World Rank:

15

Regional Rank:

8

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:

6.94/10

World Rank:

31/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Foreign Trade in Figures

Lithuania is a very open economy, with foreign trade representing 176% of GDP (World Bank, latest data available). According to Statistics Lithuania, in 2022, the majority of exports comprised mineral products (16.9%), chemical and allied industries (12.3%), and machinery and mechanical appliances, electrical equipment (11.5%). On the other hand, imports were predominantly mineral products (28.5%), machinery and mechanical appliances, electrical equipment (14.8%), and products of the chemical and allied industries (11.3%).

In 2022, imports came chiefly from Poland (11.7%), Germany (11.6%), and Latvia (7.9%), while the main export partners were Germany (9.7%), Poland (9%), Latvia (8.7%), the United States (7.8%), and the Netherlands (7.5%). The majority of goods were exported to EU member states, accounting for 62.2% of total exports from Lithuania. Similarly, the largest proportion of imports also originated from EU member states, constituting 63.3% of total imports to Lithuania (data Statistics Lithuania).

The country's merchandise trade balance has historically been in deficit, which can largely be explained by the energy imports and, particularly, by the large amount of gas Lithuania imports from Russia. In 2021, Lithuania exported goods worth USD 46.3 billion, with imports amounting to USD 54.9 billion. Compared to the previous year before, exports increased by 13.8% and imports by 22.2% (data WTO). However, the balance of services is generally positive: in 2022, exports stood at EUR 18.3 billion (+14.1%) as imports grew at a faster pace, to EUR 12 billion (+24.5% y-o-y – WTO). The country’s overall trade balance in goods and services was estimated to be negative by 2% of GDP in 2022 (World Bank). Between January and October this year, the value of Lithuania's exports decreased by 9.6% to EUR 33.16 billion, whereas imports dropped by 13.8% to EUR 37.49 billion, as reported by Statistics Lithuania.

Sources of General Economic Information

Ministries

Ministry of Economy
Ministry of Finances

Statistical Office

Department of Statistics

Central Bank

Central Bank of Lithuania

Stock Exchange

Nasdaq Nordic

Search Engines

Google
Lithuania on line

Economic Portals

Baltic Times
Delfi

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