Lithuania: GDP growth remains robust at the beginning of the year
June 1, 2018
According to detailed data released by the Statistical Institute on 1 June, GDP expanded 3.7% in annual terms in the first quarter, down from 4.0% in the fourth quarter (previously reported: +3.6% year-on-year) Sustained fixed investment growth, coupled with a healthy expansion in private consumption and a solid increase in exports, were the key drivers of growth in the first quarter.
Fixed investment soared 9.1% in Q1, a slight deceleration from a nearly four-year high of 9.7% observed in Q4. The sixth consecutive quarter of robust fixed investment growth is most likely related to sustained inflows from the EU Structural and Cohesion Fund and has come against the backdrop of an accommodative monetary policy environment in the EU. Further buttressing domestic demand was healthy household consumption growth, which decelerated marginally from the previous quarter’s 3.5% annual increase to a 3.3% expansion in the first quarter. The expansion in private consumption remained healthy on the back of a sustained moderation in inflationary pressures in the first quarter, and amid further tightening of labor market conditions. Meanwhile, the growth rate of government consumption ticked down to 0.4% in Q1 (Q4: +0.5% yoy), decelerating for the third consecutive quarter.
On the external front, exports of goods and services continued to fuel economic activity at the beginning of the year. Despite the easing in export growth to 10.4% in Q1 (Q4: +15.2% yoy), the contribution of the external sector to the GDP growth quadrupled from 0.6% in Q4 to 2.4% in Q1, as an increase in imports nearly halved from the previous quarter’s 14.3% to 7.3% in Q1. The moderation in export expansion came on the back of fading import demand from some of Lithuania’s key trading partners, namely other Baltic countries and Poland.
On a quarter-on-quarter basis, GDP rose a seasonally- and working-day adjusted 0.9% in Q1, moderating from the previous quarter’s more robust 1.4% expansion, largely due to a contraction in fixed investment in Q1.
The economy is projected to maintain healthy growth this year, buttressed by easing inflationary pressures, booming investment activity and a more effective absorption of EU structural funds. The external sector should also support growth notably this year, although export growth is set to continue decelerating in the medium term. , Long-term challenges remain, however: without a structural overhaul of the national welfare system and the implementation of key labor market reforms, the economy is likely to become less competitive in the face of a swiftly deteriorating demographic situation in the country.
Lithuania GDP Forecast
The Central Bank expects GDP to grow 2.8% in 2018. FocusEconomics Consensus Forecast panelists see the economy growing 3.3% in 2018, which is up 0.1 percentage points from last month’s estimate. In 2019, our panel expects GDP to expand 3.0%.
Author: Almanas Stanapedis, Economist