Lithuania Economic Forecast

In Q2, the economy rebounded more strongly than initially estimated, according to a second release. GDP strengthened compared to the same quarter of 2022 thanks to rising fixed investment growth and recovering exports of goods and services. Less positively, private spending deteriorated at a sharper pace compared to Q1, while public consumption flatlined. Turning to Q3, GDP growth is seen moderating slightly year on year from Q2. July saw the industrial sector start the quarter on a low note, while retail sales remained downbeat, similarly to in Q2. A higher unemployment rate in the same month compared to the previous quarter and further rate hikes by the ECB in July and September are also boding ill for consumer budgets. Meanwhile, economic sentiment in July–August remained pessimistic; deteriorating sentiment in the retail and services sectors weighed on the overall reading.

In August, harmonized inflation eased to a near two-year low of 6.4% (July: 7.2%). The moderation was largely due to falling prices for housing and utilities. Average inflation will more than halve in 2023 from 2022, thanks to tighter monetary conditions and muted domestic demand. Stronger-than-expected domestic activity and potential energy-price spikes pose upside risks.