Lithuania vs Latvia in 2025: Baltic Sisters Navigate Defense Priorities and Economic Transformation
Growing Defense Commitments and Security Cooperation
The Baltic States are significantly increasing their defense spending, with plans to invest 6.3 billion euros in 2025, representing 3-4% of their GDP. Both countries are expected to further increase defense spending to over 5% of GDP in the coming year.
Lithuania has strengthened its security position through enhanced cooperation with Germany, marked by the activation of a German brigade (4,800 soldiers) on Lithuanian territory in April 2025, reinforcing NATO’s eastern flank.
Economic Trajectories and Development
Lithuania’s economy shows promising growth prospects, supported by robust private consumption, investment recovery, and strong exports. However, global trade tensions and geopolitical uncertainty are expected to impact goods exports, consumption, and investments.
Projections indicate Lithuanian GDP growth of 2.8% in 2025, rising to 3.1% in 2026. Inflation is expected to reach 2.6% in 2025 before easing to 1.2% in 2026, influenced by commodity price fluctuations.
International Cooperation and Development
In a significant development, Latvia joined the OECD Development Assistance Committee (DAC) as its 33rd member in March 2025. The DAC serves as the leading international forum for development cooperation standards. This membership enhances Latvia’s ability to support Ukraine and other EU Eastern Partnership countries while building new international partnerships.
Infrastructure and Regional Integration
Both countries are involved in major infrastructure developments, particularly the Rail Baltica project, which will connect the Baltic States with the rest of Europe through Poland, enhancing regional connectivity and economic integration.
Lithuania is making substantial investments in renewable energy and clean growth sectors, with renewable energy expected to dominate electricity, heat, and transport sectors. The country is also expanding its infrastructure for electric vehicles.
Future Outlook
Looking ahead, Lithuania’s economic growth will be supported by continued real wage increases and private consumption, though geopolitical uncertainty may impact growth. The savings rate is projected to reach historic highs of 12-13% of disposable income, while investment growth is expected to be boosted by Recovery and Resilience Facility funds and defense spending.
