The 2023 European Commission Country Report on Lithuania presents a detailed analysis of the nation's economic performance, labor market dynamics, and structural challenges within the framework of the European Semester. In 2022, Lithuania's economic growth was notably impeded by surging inflation, which reached 18.9%, one of the highest rates in the European Union. This inflationary pressure was largely attributed to the energy price surge following Russia's invasion of Ukraine, which significantly impacted household disposable incomes and dampened real consumption. Consequently, economic growth slowed to 1.9% in 2022, with a contraction observed in the final quarter of the year.

Despite these economic headwinds, Lithuania's labor market demonstrated resilience. The activity rate rebounded to pre-pandemic levels, reaching a record high of 79.0% in 2022, surpassing the EU average of 74.6%. This was partly due to the high employability of individuals fleeing the conflict in Ukraine. However, challenges persist, including a projected slight decrease in total employment in 2023 and a higher unemployment rate in rural areas and among low-skilled workers. Skills mismatches remain a significant obstacle to employability and competitiveness, particularly in sectors like construction, where firms report considerable difficulties in finding adequately skilled labor.

In terms of fiscal health, Lithuania's general government deficit decreased from 1.2% of GDP in 2021 to 0.6% in 2022, while public debt fell from 43.7% to 38.4% of GDP. These improvements were achieved despite the implementation of fiscal measures to mitigate the impact of high energy prices, such as VAT compensations for district heating and subsidies for electricity and gas tariffs. The net budgetary cost of these measures was estimated at 1.3% of GDP in 2022. ​

Lithuania's Recovery and Resilience Plan (RRP) plays a crucial role in addressing structural challenges and promoting sustainable growth. The plan includes reforms and investments aimed at enhancing energy independence, digital transformation, and social inclusion. Notably, the REPowerEU chapter of the RRP focuses on accelerating the deployment of renewable energy, improving energy efficiency in buildings, and promoting sustainable transport. These initiatives are expected to reduce dependency on imported fossil fuels and strengthen the country's resilience to external shocks. ​

Social indicators in Lithuania have shown some improvement; however, challenges remain. The share of people at risk of poverty or social exclusion fell slightly between 2020 and 2021, but rates remain high among older adults and persons with disabilities. In 2021, 22.5% of the population were unable to heat their homes adequately, a figure significantly higher than the EU average. The effectiveness of social transfers in reducing poverty and inequality is also lower compared to other EU countries, highlighting the need for more efficient social protection systems. ​

In summary, while Lithuania has made commendable progress in certain areas, including labor market participation and fiscal consolidation, it continues to face significant challenges related to inflation, energy dependency, and social inclusion. The successful implementation of the Recovery and Resilience Plan, particularly its focus on green and digital transitions, will be pivotal in addressing these issues and ensuring sustainable economic growth in the years ahead.​