Last year’s great performance is unlikely to be repeated soon
Thanks to recovering global trade and still supportive domestic demand, last year the Lithuanian economy enjoyed the fastest growth since 2013. In real terms, GDP expanded by 3.8% in 2017 - exactly in line with our forecast.
The domestic demand remained the main driver of last year’s growth. However, real growth in household consumption decelerated to 3.9% last year on the back of shrinking employment and slower real wage growth. Growth in investment was finally picking up from a slump last year, expanding by 7.3%. The recovery in productive investment (transport and ICT equipment, IP products) was particularly strong. Investment into dwellings declined by 4.6% last year – this is not surprising given the lower activity in the residential real estate market.
The exporters surprised on the upside last year – exports of goods and services expanded by 13.2%, which was the fastest real growth rate since 2011. Export growth was supported by very favourable economic developments in the main export markets, namely EU, Russia, US and others. Export growth was broad-based in terms of products and export destinations.
In terms of growth in value added, construction was at the forefront of all sectors, expanding by 7.5%, but this was largely due to base effects. Information and communication, industry, trade, professional and administrative support activities were also among the best-performers last year. Value added declined by 1.9% in agriculture, largely due to bad weather.
Outlook: growth will ease
Outlook for 2018 remains optimistic albeit more conservative compared to 2017. We expect the economy to expand 3.2% this year. It will be difficult to repeat the surge in exports we observed last year - labour shortages, deteriorating cost competitiveness and limited capacity will put a lid on growth. Meanwhile, growth in household consumption is likely to continue decelerating on the back of shrinking employment and slower wage growth. Nevertheless, the distribution of EU funds should finally kick in and picking up investments should compensate somewhat for the slowdown in growth of other components. Next year growth is expected to decelerate to 2.5%.
For more information about this report, please contact Mrs. Laura Galdikienė, +370 5 258 2275, Laura.Galdikiene@swedbank.lt
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