European Bank For Reconstruction And Development Forecasts Continued Economic Growth Across Baltic States Despite Energy And Inflation Pressures

The European Bank for Reconstruction and Development (EBRD) has released its latest economic outlook for the Baltic states, forecasting continued growth across Estonia, Latvia, and Lithuania in the coming years despite increasing global economic challenges. According to the Bank’s June 2026 Regional Economic Prospects report, Estonia’s economy is expected to grow by 2.1 per cent in 2026, Latvia by 2.0 per cent, and Lithuania by 3.0 per cent.

While the region is expected to maintain positive economic momentum, the EBRD has slightly lowered its growth forecasts compared with its February 2026 projections. The forecast for Estonia has been reduced by 0.1 percentage point, Latvia by 0.2 percentage point, and Lithuania by 0.3 percentage point. These revisions reflect the impact of higher energy prices linked to the conflict in the Middle East, rising inflationary pressures, and weaker economic conditions in key international markets.

Despite these challenges, the Bank expects economic activity across the Baltic region to remain resilient. Looking ahead to 2027, all three countries are forecast to record growth of between 2.2 and 2.3 per cent, supported by strong domestic demand, public investment, and ongoing infrastructure development. Several factors are expected to support growth throughout the region.

Consumer spending remains relatively strong, helped by stable labour markets and rising wages. Governments across the Baltic states are also increasing defence expenditure in response to evolving security concerns. In addition, continued investment through European Union funding programmes and large-scale infrastructure projects, particularly the Rail Baltica railway network, is expected to provide significant economic support.

At the same time, the region faces a more challenging external environment. Higher energy costs resulting from geopolitical tensions in the Middle East continue to create uncertainty for businesses and households. Persistent inflationary pressures and weaker demand from important export markets in the euro area and Nordic countries are also expected to limit the pace of economic expansion.

In Estonia, economic growth is forecast to reach 2.1 per cent in 2026 and improve slightly to 2.3 per cent in 2027. The country has been relatively well protected from the recent energy price shock because of its participation in the Nordic-Baltic regional electricity market. This market relies heavily on hydroelectric, nuclear, and wind power generation, reducing exposure to rising natural gas prices.

Estonia’s economic recovery is expected to be supported by major infrastructure projects such as Rail Baltica, higher public investment, and growth in real wages that strengthen household purchasing power. However, the EBRD notes that a prolonged period of high energy prices, weaker economic performance in the euro area, or delays in key infrastructure developments could slow the recovery.

Latvia is also expected to maintain positive economic momentum. The EBRD forecasts that the country’s GDP will grow by 2.0 per cent in 2026 and accelerate to 2.3 per cent in 2027. Growth is expected to be driven by increased investment activity, recovering consumer spending, and stronger exports from the services sector.

Like Estonia, Latvia benefits from participation in the Nordic-Baltic electricity market, which helps reduce the impact of higher energy prices experienced elsewhere in Europe. Continued absorption of European Union funds, progress on the Rail Baltica project, and rising real wages are expected to support economic activity over the next two years.

Nevertheless, further delays to major infrastructure projects or additional increases in energy prices remain potential risks.Among the Baltic states, Lithuania is expected to record the strongest growth performance. The EBRD forecasts GDP growth of 3.0 per cent in 2026 before moderating to 2.2 per cent in 2027.

Strong domestic demand and continued investment activity are expected to remain key drivers of growth. In addition, changes to the country’s pension system are expected to provide a temporary boost to household spending, further supporting economic activity. Although Lithuania is considered the most exposed of the Baltic states to the recent energy price shock due to its reliance on gas-fired electricity generation, the country is still expected to outperform its regional neighbours over the forecast period.

Beyond the Baltic region, the EBRD expects higher energy prices to affect growth across many of the economies where it operates. The Bank forecasts average economic growth of 3.1 per cent across its regions of investment in 2026, increasing to 3.6 per cent in 2027. However, these figures represent downward revisions of 0.5 percentage point and 0.1 percentage point respectively compared with the forecasts issued in February 2026.

The EBRD continues to play an important role in supporting economic development across the Baltic states. Since beginning its operations in the region, the Bank has invested more than €2.1 billion in Lithuania and over €1.3 billion each in Estonia and Latvia. Its investments focus on promoting sustainable economic growth, supporting renewable energy projects, strengthening capital markets, and encouraging innovation-driven industries.

Through these efforts, the Bank aims to help the Baltic states build greener, more resilient, and more competitive economies for the future.Although global economic uncertainties remain, the latest EBRD outlook suggests that the Baltic economies are well positioned to continue growing, supported by investment, infrastructure development, and resilient domestic demand. However, managing energy costs and navigating external economic pressures will remain important factors influencing the region’s economic performance in the years ahead.