Lithuania: Growth maintains momentum in Q2
September 1, 2017
Healthy exports of goods and services due to strong demand from Europe sustained annual economic growth in Q2 at levels close to Q1’s result, according to detailed data released by the Statistical Institute on 1 September. GDP expanded 4.0% year-on-year in Q2 (Q1: +4.1% year-on-year), slightly higher than the preliminary 3.9% figure released in July.
Fixed investment grew 4.5% in Q2 compared to the same quarter of the previous year, a slowdown compared to Q1’s 10.3% rise. Investment growth was dragged down by weaker investments in dwellings and transport equipment. Nevertheless, households borrowed more to make real estate purchases, while companies invested to improve efficiency and capacity to make up for last year’s low investment. The European Union’s allocation of grants from the Structural Funds and Cohesion Fund also gained speed, which, together with low interest rates, supported fixed investment growth. Household consumption levels, meanwhile, slipped in Q2 compared to Q1, recording growth of 3.5% versus 4.5%, respectively. This slip likely reflected rising inflation catching up on consumers’ purchasing power. Employment in 2017 has also reduced compared to the end of 2016. Government consumption growth remained unchanged in Q2 from Q1’s 1.2%.
On the external front, the economy fired on all cylinders as exports of goods and services rose 12.3% in Q2 compared to the same quarter of the previous year. This was up from the 9.4% year-on-year growth recorded in Q1. The expansion in exports was supported by strong growth in low value-added manufacturing exports, such as furniture exports. At the same time, imports grew at 8.9% in Q2, a lower rate of expansion compared to Q1’s 11.8%. Accordingly, the external sector contributed 2.3 percentage points to Q2’s overall expansion, contrasting with its 2.3 percentage-point detraction in Q1.
On a quarter-on-quarter basis, GDP grew a seasonally- and working-day adjusted 0.6% in Q2, down from the 1.3% increase recorded in Q1.
Looking ahead, growth is set to stay strong for the remainder of this year, supported by higher allocation of grants from the EU Structural Funds and Cohesion Fund. Household spending and external demand are expected to remain strong as well. A sluggish implementation of reforms to liberalize the labor market and boost innovation could nevertheless constrain growth.
Author: Edward Gardner, Economist