A superb finish to a good year
Lithuanian economy grew at 3.5% (3.6% seasonally adjusted) annually in 2018, very much in line with our expectations. Economic expansion was supported by solid domestic consumption, active investments and surprisingly strong external sector in a wake of slowing global growth.
In the fourth quarter economy grew 3.9% annually and 1.6% quarterly (sa). In addition, the third quarter growth was revised upwards again. In Q3 economy grew 3.3% annually (previously 2.9%) and 0.1% quarterly. The likely main reason for revision is a much better performance of exports of services than initially estimated.
Outlook: growth to slow down slightly
For 2019 we expect to see GDP growth of 2.7%. On one hand growth will be supported by strong consumption as real incomes will increase at a rapid pace. The tax reform will provide a considerable fiscal boost in 2019 and a moderate one in the next two years. Currently confidence indicators are at a very high level and are unaffected by global uncertainties. Capacity constraints and labour shortages should incentivize companies to invest more, but it puts a limit to the speed of expansion without overheating. In addition, the flow of EU investment funds should accelerate and support the investments.
On the other hand, external factors will dampen growth in 2019. Major markets are experiencing a slowdown in growth rates and it will dampen the growth of Lithuanian economy. Exports are unlikely to expand so fast in the nearest future. Hard Brexit and escalation of trade wars remain the downside risks to the economic growth.
For more information about this report, please contact:
Vytenis Šimkus, +370 687 17870, email@example.com.
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