Swedbank downgraded its outlook for Lithuania’s economy, predicting gross domestic product growth of 3% this year, down from the 3.5% forecast issued in January. Its projection for 2027 was also trimmed by 0.2 percentage points to 2.3%, independent Lithuanian news agency BNS reported on May 6.

As reported by IntelliNews, the Bank of Lithuania, the country’s central bank, has warned that inflation in Lithuania could climb to nearly 6% this year under its worst-case scenario, driven by economic fallout from the war in Iran and rising energy price

Presenting the revised outlook on May 6, Nerijus Maciulis, the bank’s chief economist, said domestic consumption would remain an important driver of growth, while exports and industrial production were continuing to strengthen.

“One factor behind this year’s growth is linked to withdrawals from the second pension pillar, but there are also structural, long-term factors that distinguish Lithuania,” he said, BNS reported.

According to the economist, manufacturing output in Lithuania has risen by 42% since 2020, while exports of high value-added services exceeded €10bn for the first time last year, accounting for more than a tenth of the country’s GDP.

Despite the growth outlook, inflation is now expected to be significantly higher than previously estimated. Swedbank raised its average annual inflation forecast for this year to 5.2% from 3.5%, which would make Lithuania the highest-inflation economy in the Baltic region.

“Inflation above 5% will somewhat reduce consumption capacity,” Maciulis said, BNS reported.

He linked rising prices to more expensive oil and fuel, tax increases introduced this year and continued pressure from fast-growing labour costs. However, he noted that wages and pensions were still expected to rise more quickly than inflation overall.

The bank said household confidence had weakened in recent months as prices accelerated, although consumers remained more optimistic about their own financial situation than about the wider economy.

Swedbank expects economic expansion to be supported by positive net migration and ongoing private and public investment. Average wages are forecast to increase by 8% this year, while unemployment is projected at 6.8%. Wage growth is expected to slow further next year as businesses adjust to more sustainable levels of pay increases, BNS said.