An unexpected slump in growth
Lithuanian economy disappointed in the third quarter of 2018. Annual GDP growth decelerated from 3.8% in the second quarter to 2.2% in the third. In seasonally and calendar adjusted terms, in the third quarter GDP increased by 2.7% annually and declined by 0.4% quarterly.
There were several reasons that could have caused the rapid slow-down in growth. Statistics Lithuania identifies a contraction in agricultural yields as the main negative factor. According to the Agriculture Information and Rural Business Center, a state-owned enterprise, the export volumes of grains and rape seeds declined by 70% in September, compared to the same period a year ago. The center estimates that crop yields will be 16% lower this year than a year ago.
Annual growth in manufacturing and exports of services also grinded to a halt in the past few months. It could be related to severe bottlenecks in German car manufacturing industry as new car testing standards are being implemented. On the other hand, other fundamentals are looking strong. In annual real terms, retail trade increased by 7.4% in the third quarter, supported by rapid wage growth. Annual nominal growth in exports of goods accelerated to 8.6% in the first eight months of the year.
Outlook: growth to slow down slightly
We believe that the negative outcome for this quarter is likely to be a one-off caused by poor crop yields and manufacturing bottlenecks in German automotive industry, thus we expect growth to rebound in the fourth quarter. Growth will continue to be supported by robust growth in consumer spending, investments and still-strong external sector performance. We stick with our forecasts that the economy will expand by 3.6% in 2018 and by 2.5% in 2019.
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