Lithuanian Industry Growth and Risks in 2026

Lithuania’s industrial output has not yet entered a downturn despite geopolitical pressure and supply-chain concerns, according to forecasts from Citadele Bank. The bank estimates that annual industrial production growth reached about 4.9% in May, the fastest pace since June of the previous year.

The main driver is not a sudden increase in domestic consumption. Citadele points instead to advance production: some European manufacturers are raising output ahead of time because they fear higher raw material prices or possible supply disruptions.

Vaidas Žagūnis, a member of Citadele Bank’s management board and head of corporate banking for the Baltic states, says Lithuanian industry has so far avoided a direct negative impact from the military conflict in Iran because orders from Western European manufacturers remain active.

Lithuanian companies often supply components and intermediate goods to manufacturers in Germany and other eurozone countries. When those companies build inventories, Lithuanian factories also receive more work.

According to Žagūnis, some European producers are trying to protect themselves against possible increases in raw material prices or logistics disruption. This can lift production figures in the short term, but it does not necessarily show a lasting recovery in final demand.

“Some European manufacturers, fearing further increases in raw material prices or supply disruptions, are increasing production volumes and building product inventories. Lithuanian companies supply components and intermediate products to manufacturers in Germany and other Western European countries, so as orders in the eurozone grow, the load on local producers also increases,” Žagūnis said.

These figures suggest a short-term improvement in production, but they do not remove the risk of weaker demand. If warehouses across Europe reach the desired inventory level, orders may slow even without a new geopolitical shock.

Citadele forecasts that annual industrial production growth could reach 6.2% in June and exceed 8% in July.

“Our forecasting models show that despite the prolonged conflict in Iran, we will not yet see signs of crisis in Lithuanian industrial indicators in the near term. On the contrary, the pace of growth in production volumes will even accelerate in the near future,” Žagūnis said.

Lithuania is a small, export-oriented economy in the Baltic region, and its manufacturing sector is closely linked to wider European supply chains. Germany is especially important because many Lithuanian suppliers operate within German industrial networks.

If German and other eurozone manufacturers temporarily increase orders to build inventories, Lithuanian factories benefit. But if final consumers in the eurozone start buying less, producers may eventually have to reduce output.

Žagūnis warned that worsening consumer expectations in many eurozone countries are already sending a weaker demand signal.

“A significant fall in eurozone consumer optimism signals that increased concern about the economy, finances, labour-market prospects and a jump in inflation may encourage some eurozone consumers to reduce consumption, which will pose a risk to both German and Lithuanian industry,” he said.

Even if production volumes rise in the coming months, the operating environment for companies may remain difficult. Advance production requires more working capital, more storage capacity and careful logistics planning.

If raw materials become more expensive or delivery times lengthen, companies must finance larger inventories. This can be especially difficult for smaller manufacturers with limited bargaining power with suppliers and customers.

Pressure is also visible in employment statistics. According to the latest data cited in the article, the number of employees in the industrial sector fell by 3.1% in the final quarter of 2025. This was the fastest decline since the end of 2010.

“This trend is driven by increased labour costs and declining competitiveness. Additional pressure is also caused by external factors, including trade restrictions and tariffs,” Žagūnis said.

Citadele expects Lithuania’s industrial indicators to improve in the short term. However, the advance-production effect is not unlimited. Warehouse capacity is finite, and extra production requires additional financial and logistical resources.

Once companies reach a certain inventory level, they may be forced to reduce orders and slow production. For that reason, market participants will be watching not only Lithuanian industrial output statistics, but also eurozone consumer sentiment, raw material prices, trade restrictions and the impact of the conflict in Iran on supply chains.

The near-term outlook for Lithuanian industry remains favourable, according to Žagūnis, but the longer-term picture will depend on geopolitical developments and demand in Europe.

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