Tuesday, 15 September 2026
Lithuania’s economy strengthened during the first half of 2026, with growth accelerating considerably during the second quarter after a softer opening to the year. Household spending and services remained supportive, while manufacturing and other business activity improved as H1 progressed. Inflation and rapidly rising labour costs, however, became increasingly important challenges. GDP increased by 1.7% during the second quarter compared with the previous three months and was 3.8% higher than in Q2 2025. This followed annual growth of 2.8% during the first quarter, placing Lithuania among the stronger-performing EU economies during Q2.
The acceleration was significant because the opening months of the year had been less convincing. Transport, storage and construction weighed on activity during Q1, although household consumption increased by 1.0% from the previous quarter and government consumption rose by 0.9%. Fixed investment declined by 4.4% during the quarter, showing that capital spending had started 2026 on a weaker footing. Economic conditions improved during Q2, with manufacturing among the sectors contributing to the rebound alongside construction, wholesale and retail activity, transport and storage. The recovery is particularly relevant for Lithuania because its industrial economy remains closely connected with demand elsewhere in Europe and is therefore sensitive to conditions in major export markets.
Industrial activity nevertheless remained uneven from month to month. Production increased by 2.1% in June compared with May, reversing part of the weakness recorded during the previous month. The changing monthly performance shows that industry was improving but remained exposed to fluctuations in international demand, energy costs and supply-chain conditions. Services provided another source of economic support, with turnover among service businesses reaching approximately €4.4 billion in June, 7.1% higher than a year earlier after adjustment for calendar differences. Continued growth in services is helping broaden Lithuania’s economy beyond its traditional reliance on manufacturing and merchandise exports.
Consumer activity also remained resilient during the first half. Retail turnover increased by 0.3% in June compared with May, while strong wage growth continued to support household incomes. The benefit from higher earnings was increasingly being reduced by faster price growth, however, as inflation accelerated during H1. The labour market remained relatively tight, with unemployment at 6.1% during the second quarter and more than 35,000 vacancies recorded in June. The number of available positions illustrates the continuing difficulty businesses face in recruiting employees with the appropriate qualifications in parts of the economy.
Labour costs increased rapidly alongside this demand for workers. Hourly costs across industry, construction and services were 9.6% higher during Q2 than a year earlier, with the increase reaching 9.8% among businesses. Higher wages support consumer spending but also increase operating costs, particularly for companies in labour-intensive services, construction and manufacturing. Inflation became one of the most significant economic concerns during the first half. Consumer prices measured using the harmonised European index were 5.4% higher in June than a year earlier, while Lithuania’s national measure showed inflation of 5.7%. Prices increased by 0.5% between May and June, while average annual harmonised inflation reached 3.9%.
Energy costs were an important contributor to the increase, alongside changes in indirect taxation and continued price growth across services. Lithuania’s exposure to international energy markets means movements in energy prices can affect households and companies relatively quickly. The combination of rising wages and resilient domestic demand also creates an environment in which businesses may find it easier to pass some cost increases to customers.
Foreign trade continued to reflect Lithuania’s position as a small and highly open economy. Goods exports reached approximately €3.55 billion in June, while imports were around €4.26 billion, resulting in a monthly trade deficit of approximately €713 million. Lithuanian-origin goods accounted for around €2.36 billion of exports. The trade balance also illustrates the interaction between domestic and external demand. Stronger household spending and investment can increase imports of equipment and consumer goods, while export performance depends heavily on economic conditions in Lithuania’s principal European markets. A stronger domestic economy therefore does not necessarily produce an immediate improvement in merchandise trade.
Investment is expected to become more supportive during the remainder of 2026, rather than having been a consistent source of H1 growth. European funding, defence expenditure, infrastructure projects and industrial development are expected to increase capital spending, while financing conditions have become more favourable than during the earlier period of higher interest rates. Defence expenditure is becoming particularly important to this investment pipeline, generating requirements for infrastructure, manufacturing capacity and supporting services. New defence-industry projects are also creating demand for industrial facilities and associated infrastructure.
Transport and energy projects add another layer of investment. Rail Baltica, development connected with Klaipėda and continued spending on electricity networks and energy security are contributing to construction and industrial activity while potentially improving Lithuania’s longer-term connectivity and competitiveness. For commercial property, stronger economic growth creates a more supportive backdrop, although conditions differ substantially between sectors and locations. Manufacturing, infrastructure and defence investment can support demand for industrial and logistics facilities, while the development of new industrial capacity may create opportunities outside the locations that traditionally attracted most institutional real estate investment.
Retail property benefits from resilient household demand and rising wages, although inflation represents an increasing risk. The extent to which earnings continue to outpace consumer prices will be important in determining discretionary spending during the second half. The office market faces a different balance. Expansion in services and the broader economy can support occupier demand, but new supply, changing workplace requirements and operating costs mean that individual building performance increasingly depends on location, quality and energy efficiency. Housing conditions are similarly influenced by wages, borrowing costs and the availability of new supply. Lower financing costs can improve affordability, while rising incomes support purchasing power, although construction costs and labour availability remain important constraints for developers.
The Bank of Lithuania expects the economy to expand by 2.7% during 2026, followed by growth of 2.0% in 2027 and 3.3% in 2028. Household consumption is forecast to increase by 4.1% this year, while fixed investment is expected to rise by 10.1%. Export growth is projected at only 0.4%, reflecting relatively weak demand in international markets. The central bank expects average harmonised inflation of 5.1% during 2026 before it declines to 3.0% in 2027 and 2.6% in 2028. Wage growth is forecast at 8.7% this year, while unemployment is expected to average approximately 6.8%.
The European Commission expects somewhat stronger GDP growth of 3.0% during 2026, followed by 2.1% in 2027. Its spring forecast puts inflation at 4.4% this year and 2.7% in 2027, while unemployment is expected to average 6.7% during 2026. The IMF’s July assessment places full-year economic growth between the central bank and Commission forecasts at approximately 2.8%. Public finances remain comparatively manageable by European standards, although expenditure is increasing. The European Commission expects the government deficit to reach approximately 2.2% of GDP during 2026 and 2.7% in 2027. Public debt is forecast to increase from 39.5% of GDP in 2025 to around 44.6% this year and 48.4% in 2027.
Lithuania entered the second half of 2026 with considerably stronger economic momentum than it displayed at the beginning of the year. GDP accelerated during Q2, household demand remained supportive, services continued to expand and industrial activity improved. At the same time, inflation has returned as a significant challenge and rapidly increasing labour costs are adding pressure for businesses. The outlook increasingly depends on whether the expected increase in investment materialises while external demand remains relatively weak. European funding, infrastructure programmes and defence expenditure provide Lithuania with a substantial pipeline of potential activity. For the property sector, these forces create opportunities particularly in industrial, logistics and selected development markets, but the benefits are likely to remain concentrated in locations with suitable infrastructure, labour availability and access to energy.
Source: CIJ.World Research & Analysis Team
