The US economy will continue on a comparatively strong growth path in 2025 and 2026, while GDP growth in both the euro area and China will be limited by structural challenges. Inflation in the western economies is not too far from the target and interest rates are on the way down, albeit the pace of decline will vary. Donald Trump’s return as US president brings greater policy uncertainty and volatility. Rising protectionism and waning efforts in the fight against climate change will ultimately hurt the world economy, but the impact in 2025 and 2026 will be limited.
Large divergences remained apparent across the Baltic countries in 2024, although signs of a more synchronised recovery became evident towards the end of the year. Inflation is rising, mainly due to higher taxes, but lower interest rates and healthy labour markets should boost household consumption this year and next. The prospects are brightening, and GDP growth is likely to be close to 2.5% in all three Baltic countries in 2026 (unless protectionist policies prove to be more aggressive and damaging than expected).
