Lithuania: GDP growth picks up steam in Q4
According to detailed data released by the Statistical Institute on 1 March, GDP expanded 3.9% year-on-year in the fourth quarter (Q3: +3.2% yoy), confirming the preliminary figure released on 30 January. Strong growth in fixed investment and healthy export and private consumption growth buttressed Lithuania’s economy in the last quarter; however, imports continued to weigh on the overall figure.
Fixed investment jumped 9.7% in Q4 compared to the same quarter of the previous year, an acceleration from Q3’s 7.4% rise, and the highest pace in nearly four years. The fifth consecutive quarter of fixed investment growth reflects an accommodative monetary policy environment and sustained inflows from the EU Structural and Cohesion Fund. Private consumption growth also sped up, to 3.5% yoy in Q4, from 2.6% in the previous quarter, mostly on the back of tightening labor market conditions and a moderation in inflationary pressures at the end of the year. In contrast, government consumption growth moderated for the third consecutive quarter, dropping to 0.5% yoy in Q4, from 1.1% in Q3.
Exports of goods and services continued to buttress economic activity in Q4; growth accelerated to 15.2% compared to the same quarter of the previous year, beating Q3’s already impressive 13.9% yoy expansion. Healthy external demand from the EU and increasing orders from CIS countries and overseas trading partners gave a significant boost to the manufacturing industry. Meanwhile, imports also expanded significantly in Q4 compared to the same quarter of the previous year, accelerating to 14.3% growth, from 13.4% in the previous quarter, driven by soaring fixed investment. As a result, the contribution of the external sector to GDP growth tripled from 0.2% in Q3 to 0.6% in Q4.
On a quarter-on-quarter basis, GDP jumped a seasonally- and working-day adjusted 1.4% in Q4, almost triple the expansion recorded in the previous quarter (Q3: +0.5%), marking the strongest quarterly expansion since Q3 2012.
Overall, the economy grew at a robust pace last year, accelerating to a revised 3.8% expansion (previously reported: +3.9%) compared to 2.3% in 2016. The economy is set to maintain a healthy momentum this year, supported by robust external demand and significant capital inflows. Meanwhile, sustained tightening of labor market conditions and a favorable macroeconomic environment should stimulate domestic demand. In the medium-to-long-term key challenges include the need to overhaul the national welfare system and implement labor market reforms to maintain the economy’s competitiveness in the face of a swiftly deteriorating demographic situation in the country.