Lithuania: GDP records sharpest contraction since Q2 2020 in the first quarter
GDP plunged 2.7% year on year on a seasonally and working-day adjusted basis in the first quarter, worsening from the 0.4% contraction logged in the fourth quarter of last year. Q1’s reading marked the sharpest downturn since Q2 2020. The deterioration came on the back of weaker government consumption and exports.
Domestically, a deterioration in public spending dampened overall growth; public spending contracted 0.2% in Q1 (Q4 2022: +0.4% yoy). In contrast, household spending fell at a softer rate of 1.8% year on year in Q1 compared to a 2.7% contraction in Q4. Meanwhile, fixed investment growth improved to 8.0% in Q1, from the 4.2% expansion logged in the previous quarter.
On the external front, exports of goods and services plunged at the steepest rate in over two years, falling 2.0% in the first quarter (Q4 2022: +4.4% yoy). In addition, imports of goods and services deteriorated, contracting 4.7% in Q1 (Q4 2022: +7.9% yoy).
On a seasonally adjusted quarter-on-quarter basis, economic activity dropped 2.1% in Q1, from the previous quarter’s 0.5% decrease. Q1’s reading marked the largest decrease since Q2 2020.
Looking ahead, the economy is seen rebounding in the remainder of 2023. Nevertheless, growth will remain subdued due to tighter monetary conditions, above-target inflation and an EU-wide slowdown hitting domestic demand and exports. That said, positive migration trends and a stronger fiscal impulse will cushion activity somewhat. Further spillovers from the war in Ukraine and volatility in European energy prices pose risks to the outlook.
Analysts at the EIU commented:
“On a positive note, the Lithuanian economy is more diversified and larger than those of its Baltic neighbors, and a fledging financial services and technology outsourcing sector will continue to see above-trend growth in the coming years, partly counterbalancing the weak macroeconomic sentiment.”