Lithuania’s economy is undergoing a structural shift, with services exports now matching goods exports for the first time. Even as growth remains resilient, inflation, energy dependence and geopolitical risks continue to shape the outlook, Greta Ilekytė, senior economist at Swedbank tells Kshipra Petkar.
How would you describe Lithuania’s economic journey since it regained independence in 1991?
When Lithuania regained independence from Soviet rule, it was one of the poorest economies in Europe. GDP per capita and incomes were among the lowest in the region. Over the past three decades, the transformation has been substantial. Lithuania joined the European Union in 2004, NATO in 2005, and later adopted the euro. Today, GDP per capita adjusted for purchasing power is close to the EU average. Wages have grown around 10% annually over the past decade. The economy has shifted from low-cost manufacturing toward higher value-added services.
What does this structural shift look like now?
For many years, exports of goods — furniture, plastics and food products — were the main engine of growth. Recently, services exports matched goods exports for the first time, marking a structural turning point. As wages rise, Lithuania becomes less competitive in low-value manufacturing, but more competitive in IT, finance and business services. More workers are moving into high value-added sectors.
What is your growth outlook for Lithuania?
We recently revised our forecast slightly, from 3.2% to 3%. The downgrade is modest, reflecting slower global growth and geopolitical uncertainty. Domestic demand remains strong, and household consumption is expected to drive growth, while goods exports may remain softer.
How do you see inflation evolving?
We expect inflation to average close to 5% this year, with the peak likely around now. Lithuania is one of the most open economies in the world, so global energy prices affect us significantly. About 65% of passenger cars run on diesel, making fuel prices particularly important. Wage growth has also kept services inflation elevated in recent years.
What is your view on the European Central Bank’s rate path?
We expect two rate hikes this year, taking the deposit facility rate to 2.5%. Financial markets are pricing in three hikes, but we believe that may be too aggressive given weak European growth. Monetary policy cannot resolve supply-side shocks such as energy disruptions.
What is your outlook for the euro?
We expect the US dollar to weaken somewhat from current levels. Policy uncertainty in the US could weigh on the dollar, in our view. As a result, the euro has strengthened over the past couple of years and we expect it to remain relatively stronger against the dollar, with potential for some further appreciation.
Has geopolitics reshaped investment flows into Lithuania?
After 2022, Lithuania eliminated its energy dependence on Russia, but dependency shifted to other suppliers such as the US and Norway for gas, and the Middle East for oil. This has strengthened incentives to invest in renewable energy — not only for climate reasons, but for energy security. Foreign direct investment has slowed somewhat due to higher interest rates and Lithuania’s proximity to Belarus and Russia. However, companies already present in Lithuania continue expanding, signalling confidence.
Demographics has become a major topic in Lithuania. How serious is it?
Demographic change has generated considerable debate. Lithuania’s population declined from about 3.2 million 25 years ago to around 2.9 million today. However, during that period, the country became significantly richer. Since 2020, migration trends have reversed, with more people returning. Natural population change remains negative due to low birth rates, but I do not believe we should panic. Economies adapt through technology and productivity gains.
What are the biggest risks you worry about as an economist?
Energy dependence remains a structural vulnerability. Over the past five years, Lithuania has faced multiple external shocks — the pandemic, the war in Ukraine and conflict in the Middle East. Given the country’s openness, such developments have an outsized impact. Geopolitical uncertainty and security dynamics also remain closely watched.
(The writer was in Vilnius, Lithuania, at the invitation of Hostinger)