Global growth has been more resilient than expected so far this year, despite the impact of new tariffs and a high level of uncertainty. Economic growth has slowed down in the US and China, but the global outlook appears slightly more positive for the near future, although it remains subdued.
In the Baltic economies, the outlook is brighter as well, with growth expected to pick up more noticeably in the years to come. Household consumption will start growing in Latvia and Estonia next year and will accelerate further in Lithuania (partially thanks to withdrawals from second-pillar pension funds). Inflation is expected to ease somewhat but will remain at or slightly above 3% in all three countries.
All three Baltic countries will increase their defence spending to around or above 5% of GDP in 2026. Much of this rapid ramp-up in spending will be financed by larger budget deficits. Debt-to-GDP ratios will remain among the EU’s lowest, but the reckoning on how to balance public finances will have to start sooner rather than later.
