As we look back on 2024—a pivotal year marked by monetary policy shifts, fiscal adjustments, and growing momentum in key lending markets—the outlook for 2025 signals economic growth, renewed optimism, and areas requiring close collaboration between policymakers and the financial sector.
Economic Growth Across the Baltics
2025 is set to be a positive year for the Baltic economic cycle, driven by an anticipated easing of interest rates and increasing demand for financing. Citadele forecasts GDP growth of 2.2 % in Latvia, 2.9 % in Lithuania, and 2.4 % in Estonia, with Estonia emerging from recession after consecutive years of economic contraction.
Lower interest rates will be a key catalyst for economic activity. The European Central Bank (ECB) is expected to cut rates four times by mid-2025, with Euribor forecasted to reach 2 % by the summer of 2025. As a region heavily reliant on variable-rate loans—92 % in Latvia, 94 % in Estonia, and 97 % in Lithuania—the Baltics stand to benefit significantly from reduced borrowing costs. Declining interest rates will drive growth in housing, leasing, and business investments, reinforcing the region’s economic resilience.
Lending Markets: A Year of Strong Momentum
Signs of recovery are already evident. In the first nine months of 2024, Citadele reported an 86 % increase in mortgage loan agreements, with financing amounts up by 108 % compared to the same period in 2023. Data from Baltic central banks reveals that by November 2024, new mortgage lending had risen 15 % year-on-year, reversing a 7 % decline observed in January 2024.
Businesses are also preparing for accelerated investments. In November 2024, new business loans in the Baltic region were 12 % higher than the previous year. This growing demand signals confidence in the region’s economic prospects and reinforces the role of banks in driving sustainable growth.
Consumer Trends and the Capital Markets
Consumer confidence is gradually improving, with trends in sectors such as automotive sales offering a glimpse of recovery. According to a "Norstat Express" survey, 6 % of Latvian residents plan to purchase a new car in 2025, supported by early positive signs in car sales data for late 2024.
On the capital markets front, Latvia lags behind neighbouring Estonia but has significant potential. The potential IPOs of several Latvian companies could provide a much-needed boost, fostering deeper capital market engagement in the Baltics.
Navigating Tax Challenges and Policymakers Dialogue
While growth prospects are encouraging, 2024 introduced new tax measures that placed additional pressure on the banking sector. These included higher profit taxes and broader fiscal reforms, which risk constraining banks’ ability to reinvest in innovative solutions and growth.
“Constructive dialogue between policymakers and the financial sector will be essential in 2025 to ensure that tax policies balance fiscal needs with the long-term competitiveness of our economy and investment landscape,” added Rūta Ežerskienė, Citadele CEO and Chair of the Management Board.
Green Financing and Digital Transformation
Citadele predicts sustained demand for financing in green initiatives, including the first major wind energy projects in Latvia, following years of investment in solar energy. “Green investments not only enhance energy independence but also align with the Baltic region’s climate neutrality goals,” noted Rūta Ežerskienė.
The continued digitalization of businesses, driven by labour shortages, will also shape 2025. E-invoicing will become mandatory for Latvian municipalities and state institutions, paving the way for broader adoption by private companies in 2026. Citadele’s fintech partnerships, such as the KLIX and ESTO collaboration, will further accelerate e-commerce development in the Baltics.
Geopolitical and Global Considerations
Geopolitical uncertainties, including changes in U.S. trade policy under President Donald Trump, could impact Latvian exporters, especially given the rapid growth of Latvian exports to the U.S. over recent years—from EUR 208 million in 2019 to EUR 612 million in 2022.
Simultaneously, military spending will remain a priority for Baltic governments, with significant investments in the defence sector expected to continue. This underscores the importance of banking sector support for public and private initiatives that enhance regional security and resilience.
Fraud Prevention and Customer Education
As e-commerce and digital payments grow, so do fraud risks. Citadele emphasizes the importance of investing in robust IT systems and customer education to combat these threats. “The ability to protect customers from fraud will increasingly define the trust and choice of financial institutions,” said Rūta Ežerskienė.
A Resilient and Adaptive Banking Sector
In conclusion, 2024 underscored the resilience of the Baltic banking sector amid shifting economic and regulatory landscapes. With continued collaboration between the financial industry and policymakers, 2025 can become a year of opportunity, innovation, and sustainable growth for the region.