Flash comment: Lithuania - January 29, 2016
GDP increased by 1.6% in 2015

According to the flash estimate, annual GDP growth accelerated to 2.0% in the fourth quarter of last year, in line with our expectations. Previous quarter growth remained unchanged at 1.7%.

Growth was mainly driven by household consumption as retail trade increased by 5.3% last year and was close to the growth in 2014. However, investment growth was surprisingly high as well having in mind geopolitical uncertainties and collapsing trade with Russia. Investment in fixed tangible assets increased by 10.1% in the first three quarters last year compared with the same period a year ago. Despite exports to Russia (the main export market for Lithuania) contracting by 40%, total exports in real terms most likely avoided contraction due to strong export growth to EU and USA. Real export growth most likely again turned positive in the final quarter as export prices continued contracting rather significantly, while import growth probably remained lower than in the first half of last year. Therefore, negative drag from net exports most likely decreased in the second half of last year.

Economic sentiment indicator recovered to -5 in January and was by 7 points higher than a year ago. Confidence in a month increased the most in construction, industry and services. Only construction confidence remained lower than a year ago, while confidence in mainly domestic demand dependent retail and service sectors was higher by 14 and 16 points than a year ago, respectively.

Outlook: much stronger growth ahead

We expect further acceleration in economic growth this year. Even though export growth will recover, domestic demand will remain the main driver. We expect investment growth to remain strong due to favourable lending conditions, rising inflows of EU structural funds, very healthy corporate balance sheets and rising competitiveness pressures. Employment growth this year will be weaker, but wage growth will accelerate due to even higher lack of skilled labour, 17% hike in minimum wage and rising wages of public sector employees. This together with better expectations, possibly higher borrowing and still decreasing oil price will support household consumption growth. We forecast GDP to rise by 3.3% this year and 3.0% in 2017.

For more information about this report, please contact Ms. Vaiva Šečkutė, +370 5 258 2156, Vaiva.Seckute@swedbank.lt
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