Lithuania Merchandise Trade Balance (EUR bn)

Annual GDP fell for the first time since Q3 2020 in Q4. Elevated inflation eroded purchasing power, likely denting private spending and offsetting the positive effect of a downtick in the unemployment rate in the quarter. Moreover, industrial output declined in Q4. That said, the government’s central heating subsidy—in effect between October and April 2023—likely prevented a steeper drop. Turning to Q1, the economy is likely rebounding. In January, inflation fell to an eight-month low, offering some respite to household budgets. Accordingly, consumer confidence improved to its best reading since December 2021 in February, boding well for private spending. Moreover, the lowest rate of producer price inflation in 11 months during January will have supported industrial output. Less positively, tighter financial conditions should weigh on private-sector activity.