Flash comment: Lithuania - March 1, 2019
After steady growth last year, looming risks ahead

In the second estimate of fourth quarter GDP, seasonally adjusted quarterly growth was revised down from 1.6 to 1.3. This resulted in 3.7% annual growth in fourth quarter and overall 3.4% real GDP expansion in 2018.

Consumption remained the main driver of growth and contributed 2.4pp fourth quarter annual growth. Investments growth have slowed down from 7% to 3.5% in the fourth quarter and contributed only 0.7pp. Contribution from net export has turned negative in the last quarter.

Looking at different sectors of the economy the growth was broad and fairly balanced. Construction and transport, trade, accommodation & food were the two fastest growing sectors in Q4. Agriculture was still reeling from poor harvest and contracted 1.5% annually.

Outlook: growth will ease, abundant negative and positive risks

We expect GDP growth to ease to 2.7% this year both due to the maturity of the economic cycle and elevated downside risk to the global economy. Capacity constraints and labour shortages will continue limiting potential growth. Weakness in major export markets will likely dampen the performance of external sector as well. Consumer and business sentiment in Lithuania are close or at the decade highs, indicating relatively rapid consumption and investment expansion.

On the other hand if the risks to global outlook do not materialize there are significant upside risks to economic expansion. If trade wars and Brexit are resolved peacefully the pickup in global trade volumes and global growth will positively affect Lithuanian economy. Agriculture sector, after unpleasant dip in output last year, could also surprise on the upside and boost overall growth. Also, it would seem that Lithuanian tax reform and increased roll out of EU funds will provide a timely fiscal boost to support growth in the next couple of years.

For more information about this report, please contact:

Vytenis Šimkus, +370 687 17870, vytenis.simkus@swedbank.lt.

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