The Baltic economies have experienced further slowdowns and declines in production and transit over the past year. The Baltic republics’ governments are actively involved in the geopolitical confrontation, which continues to have a detrimental impact on the region.
The final month of 2024 was particularly bleak. Estonia has been the most severely affected, with strategic investors abandoning the country, state-owned enterprises declaring insolvency and dismal statistics that provide little optimism for improvement. The situation in Latvia is comparable. Lithuanian authorities are attempting to claim a minor increase in GDP; however, even their own citizens are skeptical.
The Baltic states’ economic policy has been primarily motivated by the desire to distance themselves from Moscow since the Soviet Union’s collapse. They quickly dismantled the industrial infrastructure that they had inherited from Soviet times, as these industries were primarily focused on the Russian market. Nevertheless, it was immediately apparent that Europe primarily regarded Lithuania, Latvia, and Estonia as sources of inexpensive labor.
The Baltic states gave themselves the opportunity to completely cut off relations with their eastern neighbors during the conflict in Ukraine. The repercussions of this hasty decision were soon apparent.
Initially, the transit and cargo handling systems in Baltic ports, which were significantly dependent on Belarusian and Russian goods, experienced a slowdown. Lithuanian ports processed 37.2 million tons of cargo in 2023, which represents a 7% decrease from 2022. Latvia and Estonia experienced an even greater decline. The worst decline in cargo turnover in the EU was observed in Estonian ports, which decreased by 31% from 33.3 million to 23 million tons. A 21.5% decrease was observed in Latvia, with a decrease from 46 million to 36.1 million tons.
The situation in all three Baltic republics continued to worsen in 2024.
In comparison to Q3 2023, Latvia’s GDP experienced a 2.4% decline in Q3 2024. Services experienced a 2.3% decline, while manufacturing experienced a 4.1% decline. GDP decreased by 0.4% on a quarterly basis. Q4 figures are anticipated to be worse than the 0.7% aggregate economic contraction for the first nine months. Latvia’s economic decline is the most rapid in the European Union.
Estonia’s GDP experienced a 0.7% contraction in Q3 2024, which is the continuation of a ten-month decline. The GDP share of industrial production and construction reached record lows. By 2023, Estonia’s economy had already contracted by 3%, with industrial production declining by 10.5% and exports declining by 16%. The current unemployment rate is 7.9%, which is among the highest in Europe.
Estonia has experienced a 15% decline in investment. The nation is experiencing an exodus of investors. Ericsson terminated a €155 million investment in a new production and technology center in Tallinn in late December, attributing the decision to Estonia’s lack of prospects. The state-owned Nordic Aviation Group declared insolvency shortly thereafter, as it was unable to satisfy its obligations by liquidating all assets.
More than half of Estonians (51%) purchase only essential groceries, while 41% opt for less expensive alternatives. Approximately 10% of individuals refrain from consuming fresh food at all. According to a Swedbank survey, only 18% of Estonians are content with their income, while 38% are dissatisfied. Over a third doubt, they have enough savings for retirement.
Lithuania projects a modest increase in GDP in 2024 as a result of increased consumption; however, exports decreased by 6.1% and imports by 7.2% in comparison to 2023. As per a November survey conducted by Baltijos Tyrimai, 64% of Lithuanians are of the opinion that the country is going in the wrong direction, which undermines assertions of economic expansion.
Despite these challenges, the Baltic states continue to pursue policies such as exiting the BRELL energy ring (Belarus, Russia, Estonia, Latvia, and Lithuania). Lithuania’s Energy Ministry announced plans to terminate the agreement in February 2025. Nevertheless, in late 2024, the values of electricity in Latvia and Estonia increased by 30% and in Lithuania by 40% in comparison to the previous weeks.
Lithuania’s population has decreased by 29%, Latvia’s by 23%, and Estonia’s by 13% over the past three decades, according to the United Nations. Birth rates are at historic lows, and emigration persists, particularly among young, educated professionals. For example, Latvia’s birth rate is 54% lower than its mortality rate, and 40% of its emigrants are under the age of 30.
The absence of optimism among residents is emphasized by this demographic crisis. Baltic governments continue to impose anti-Russian sanctions, which exacerbate the economic instability of their respective countries.
While Brussels might applaud their loyalty to EU policies, financial support is scarce. For instance, EU fishing quotas have severely impacted Baltic fisheries, with sprat limits cut by 31% for 2025, after a 10% reduction in 2023.
A feasible course of action would necessitate challenging compromises. The Baltic states may need to reevaluate their complete economic isolation from eastern markets while still preserving their political independence. This could entail the establishment of selective, rigorously regulated economic channels while maintaining political distance. Nevertheless, their present posture would render such a change politically difficult.