Lithuania Domestic Demand (ann. var. %)

GDP weakens in the fourth quarter

GDP declined 0.4% year on year in the fourth quarter from 1.4% in the third quarter. This marked the economy’s worst performance since Q2 2020.

Domestically, consumption dealt a blow to Q4’s reading. Private spending dropped 2.7%, worsening from Q3’s 1.7% contraction. Elevated energy prices strained household budgets in the heating period, while entrenched consumer pessimism will have discouraged spending further. In addition, government consumption fell 0.2%, weakening from Q3’s 0.1% contraction. More positively, stronger growth in fixed investment—up 4.0% from Q3’s 2.6%—prevented a steeper deterioration in GDP.

On the external front, exports of goods and services growth slowed tangibly to 1.3% (Q3: +17.7%), as weakening EU demand dampened trade. Similarly, imports of goods and services growth softened to 3.6% in Q4 (Q3: +12.8%), signaling weakening domestic demand.

Meanwhile, on a seasonally adjusted quarter-on-quarter basis, economic growth contracted 0.5% in Q4, swinging from Q3’s 0.7% expansion.

Looking ahead, the economy should continue to face stubborn headwinds: Tighter monetary conditions should hamper private-sector activity growth, while falling purchasing power will erode household spending. Moreover, an EU-wide slowdown and trade sanctions on Russia and Belarus will weigh on exports. However, positive migration trends and a booming labor market will support activity. Further spillovers from the war in Ukraine and volatility in European energy prices pose risks to the outlook.

Analysts at the EIU added:

“Lithuania’s economy will teeter [into] an annual recession in 2023, with full-year real GDP growth forecast at a negligible 0.2%. Drastic increases in lending interest rates have already contracted money circulation in Lithuania, and with households continuing to see a fall in real wage growth in 2023, they are set to continue to withhold spending to prevent a fall in personal savings. The outlook is similar for investment spending, with firms seeking to limit losses rather than embark on a capital expenditure spree.”