Lithuania: Growth accelerates to over two-year high in Q1
June 7, 2017
Strong wage increases and tight labor market conditions drove the Lithuanian economy to expand 4.1% in annual terms in the first quarter of 2017 (Q4: +3.1% year-on-year), according to detailed data released by the National Statistics Office on 1 June. The result matched the preliminary estimate and marked the fastest expansion since Q2 2014.
Strong domestic demand underpinned Q1’s sharp acceleration, as the negative spillovers stemming from reduced EU funding last year disappeared and gave way to a marked acceleration in fixed investment, which jumped 10.3% (Q4: +5.7% yoy). In addition, a tight labor market and rising wages ensured household spending growth remained buoyant (Q1: +5.8% yoy; Q4: +5.8% yoy). Meanwhile, growth in government spending moderated to 0.8% in Q1 (Q4: +2.8% yoy).
On the external side of the economy, strong domestic demand coupled with higher commodity prices boosted imports of goods and services (Q1: +11.9% yoy; Q4: +4.2% yoy). Strengthening global demand, in particular from Russia, caused exports to jump 7.8% (Q4: +2.1% yoy). With import growth outpacing export growth, the net contribution of the external sector plummeted from minus 1.8 percentage points in the fourth quarter to minus 3.7 percentage points in the first quarter of this year.
On a quarter-on-quarter basis, GDP grew a seasonally and working-day adjusted 1.4% in Q1, which marked a marginal deceleration from the 1.5% expansion seen in Q4.
Growth is set to be strong this year, supported by higher EU investment fund absorption and solid household spending. A sluggish implementation of reforms to liberalize the labor market and boost innovation could nevertheless constrain growth.