Flash comment: Lithuania - June 1, 2018
Strong and well-balanced economic growth continues in Q1
Revised GDP figures show that the Lithuanian economy sustained the growth momentum and in annual terms increased by 3.7% in the first quarter of this year. Compared to the last quarter of 2017, GDP was 0.9% higher (in seasonally and working-day adjusted terms).

After last year’s impressive export performance, annual export growth eased to 10.4% in the first quarter of this year. While annual growth in the exports of goods eased to 5.8%, that of services picked up to 26% - the most rapid pace in more than two decades. This shows the astonishing shift in the Lithuanian export structure – only a decade ago services accounted for around 19% of Lithuanian total exports, now they account for more than a quarter.

As a result of easing growth in goods exports, growth in imports eased significantly too and the net exports overtook domestic demand as the main engine of growth.

 Annual investment growth remained strong and stood at 9.1% in the first quarter of this year. All types of investment except for transport equipment (which tends to be volatile) demonstrated strong growth. This is not surprising given record high capacity utilization level, pronounced labour force shortages, high wage growth and highest economic confidence in more than a decade.

Despite accelerating real wage growth, strong labour market as well as high and further improving consumer confidence, growth in household consumption eased to 3.3%. The recent trend of slowing consumption growth can be largely explained by negative demographic trends.

Outlook: export growth will ease; increased trade war risk

We expect growth to moderate to 3.2% throughout the year. Investment are expected to remain strong, while maintaining such high rate of export growth is unlikely, due to base effects as well as capacity constraints and very tight labour market. Current developments in southern Europe and looming trade war threats also add to the uncertainty and may have negative effect on the economic developments in the main export markets. Lithuania is a small and open economy, very dependent on exports, thus any trade restrictions do not work in our favour.

For more information about this report, please contact Mrs. Laura Galdikienė, +370 5 258 2275, Laura.Galdikiene@swedbank.lt

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