Lithuania: GDP growth records a two-year high in Q1
A second national accounts release confirmed that seasonally and calendar-adjusted GDP growth accelerated to 2.9% year on year in the first quarter from 0.1% in the fourth quarter of last year. Q1’s reading marked the fastest upturn since Q1 2022. On a seasonally adjusted quarter-on-quarter basis, economic activity rebounded, growing 0.8% in Q1 and contrasting the previous quarter’s 0.2% contraction. Q1’s reading marked the best result since Q2 2023.
The upturn chiefly reflected stronger readings for private consumption and exports.
Private consumption accelerated to 3.3% year on year in Q1 (Q4 2023: +1.1% yoy), underpinned by a sharp moderation in inflation and stronger consumer confidence. Less positively, government consumption swung into a 0.6% contraction in Q1 (Q4 2023: +0.1% yoy), and fixed investment growth plummeted to 3.3% in Q1 from 13.3% logged in the previous quarter.
On the external front, exports of goods and services rebounded, growing 0.5% year on year in the first quarter, which marked the best reading since Q2 2023 (Q4 2023: -4.4% yoy). Meanwhile, imports of goods and services slid at a more moderate rate of 4.0% in Q1 (Q4 2023: -6.2% yoy).
2024 should see Lithuania’s economy returning to growth following 2023’s downturn—the worst since 2009. Rebounding private spending will underpin the upturn, buoyed by wage growth and plummeting price pressures. Stronger public expenditure will add further impetus. That said, still-tight financing conditions will curb fixed investment, and exports will post only a timid recovery as external demand remains sluggish in the first half of the year.
EIU analysts commented on the outlook risks:
“Downside risks facing Europe’s industries include technological disruptions in the automotive sector, with Germany and central Europe being slow in its shift towards electric vehicles. Another risk stems from higher geopolitical risks from the Israel-Hamas conflict and disruptions in the Red Sea, which may jeopardise oil and natural gas supplies to Europe (not our core forecast). On the upside, Lithuania’s fledging financial services and technology outsourcing sector could drive growth significantly if global demand for digitalisation and cloud services exceeds expectations.”