2024-01-04
Growth of the Lithuanian economy will depend on external demand and the pace of recovery of domestic consumption
- The NAO FI endorses the December Economic Development Scenario for 2023–2026 of the Ministry of Finance.
- The country's economy is likely to have avoided a significant contraction in 2023, thanks to the rapid expansion of investment.
- With the labour market remaining stable, domestic demand and rising exports will support a moderate recovery in 2024.
- Risks to Lithuania's continued growth are mainly related to the pace of recovery in external demand and domestic consumption.
The National Audit Office, implementing the function of the fiscal institution (NAO FI), has assessed and endorses the economic development scenario for 2023–2026 published by the Ministry of Finance on 29 December. It is consistent with the assumptions identified and is based on relevant statistical data. The NAO FI's view on the Lithuanian economic outlook is similar to that of the Ministry of Finance.
"In 2024, we forecast moderate economic growth below 2%. It is important to increase the resilience and competitiveness of the Lithuanian economy in order to reduce the impact of external challenges. The investments that have mitigated the economic contraction in 2023 are a good example of this," said Rasa Ibelhauptaitė-Duobienė, Chief Economist at the Budget Monitoring Department.
The country's economy is likely to have avoided a significant contraction in 2023, thanks to the rapid expansion of investment. Investment in Q1–Q3 2023 in Lithuania grew by 10.2% annually despite a challenging external and internal environment. Investment in the public sector grew more than in the private sector, especially in the construction of civil engineering structures.
Both the Ministry of Finance and the NAO FI forecast that economic growth in 2024–2026 will be supported by household consumption, investment, and rising exports. Real GDP will expand at a faster pace in 2025–2026 as export markets gradually recover. A recovery in household consumption expenditure and further growth is expected in 2024, driven by the rising purchasing power of the population. The labour market situation is projected to remain stable in the medium term, with wage growth and a high level of employment. As energy prices stabilise, inflation is projected to converge towards 2% over the medium term.
Risks to further growth of the Lithuanian economy are mainly related to the pace of recovery in external demand and domestic consumption. Geopolitical tensions and high interest rates could slow down global economic growth and reduce Lithuania's export potential.