The growth in the Baltics will return; global uncertainty about the future is growing

Forecasts show that Latvia's GDP will be 0.7% this year but will increase to 2.5% next year. This year, annual inflation in Latvia may reach 1.2%, which is 0.1 percentage points less than in Lithuania, while in Estonia inflation may reach 3.5% this year. In 2025, inflation in Latvia will increase to 1.5%, but will still be among the lowest in the region.

Joona Widgren, Senior Economist at OP Financial Group: “The economic growth in Latvia is expected to accelerate in 2025. Real wages continue to grow as inflation remains low, enhancing households' purchasing power. Together with lower interest rates, this will support private consumption."

He predicts that private investments are also expected to gain momentum, reflecting a more favorable economic outlook. 

Talking about export sector, Joona adds: “Furthermore, strengthening demand in export markets is likely to support Latvia's export sector.”

"Observing the situation in Latvia, we see that investment activity in most sectors has increased and is expected to continue to increase next year. We can observe greater activity in the industrial, transport and energy sectors," says Elmārs Prikšāns, General Manager of OP Corporate Bank plc Latvian Branch.

He also explains that next year will be particularly important for large companies, as the requirements of the Corporate Sustainability Reporting Directive (CSRD) will come into force.

“Large companies are already actively working on the collection of sustainability data and the implementation of reporting processes, so that sustainability reports can be provided as early as 2026. We expect that interest in sustainability-related loans will increase significantly,” says E. Prikšāns.

Growth will return in all Baltic countries

“Historically, economic trends across the Baltic countries have been relatively similar. However, recent years have seen significant divergence in GDP growth rates. Lithuania's industrial sector showed resilience during the pandemic due to its flexibility and lower dependency on disrupted global supply chains.

Latvia’s recovery is slower due to its reliance on cyclical wood and furniture sectors. Estonia faced setbacks in its industrial output caused by declining export markets, as the country’s producers are heavily dependent on Finland and Sweden’s construction and real estate sectors,” explains Widgren.

Estonia’s economy is expected to contract by 0.5% this year but recover with 2.5% growth in 2025. Lithuania's economic growth will accelerate – GDP growth in 2024 will reach 2%, and in 2025 - 3%.

“Lithuania’s trading markets are broader compared to other Baltic countries, and the diversified export geography has helped maintain higher industrial production volumes this year. Additionally, Lithuanian consumers remain optimistic, with their confidence driving greater private consumption, positively influencing the economy,” says Joona Widgren.

He notes that while Estonia’s export and consumption sectors are rebounding, tax increases are slowing the country's overall economic recovery.

Nevertheless, Widgren notes that lower interest rates and stronger exports will positively affect all Baltic countries, enabling regional growth in the coming year.

The global economy is growing steadily, but the shadow of risks remains

The global economy has continued its steady growth, and the positive development of global trade is another sign of a thriving global economy. However, despite this positive outlook, the potential for increased tariffs poses a risk to the global economy, particularly to global trade.

Services are driving global economic growth while industrial sector is lacking behind. According to economic outlook, services will continue to support global economic growth, but the sentiment in the industrial sector has also started to improve. 

Overall, the world is currently awaiting the new US administration and its economic policies, which may affect tariffs, tax cuts and spending cuts, as well as deregulation and immigration restrictions. Uncertainty about future actions remains so significant, that even rough estimates are difficult to make. 

About OP Corporate Bank plc Latvian Branch

OP Corporate Bank plc is the central bank of OP Financial Group, Finland's largest financial services provider. We started our operations in Latvia in 2012, and we are currently the fifth largest bank in Latvia in terms of the volume of corporate loans issued. We provide financial services to the leading companies in Latvia and play an important role in the long-term development of the country and the entire region.