Flash comment: Lithuania - April 30, 2019

The year is up to a good start. Economy expanded 3.9% annually in this first quarter of 2019. Meanwhile, season and calendar adjusted quarterly growth stood at 1%.

Growth was supported by very solid domestic demand and still robust external performance. Calendar adjusted retail trade was up 6.9% annually in Q1 and manufacturing without oil was 7.8% higher than a year ago. In the first two months export of goods performance exceeded that of imports and probably contributed positively to overall growth. Judging from high business confidence and loan portfolio, investment growth also most likely remained robust.

Outlook: gradual slowdown

This year could very well turn out to be better than initially anticipated. We currently expect growth to clock in 3% for this year, however there are significant risks on both the positive and the negative.

Weak data from Germany, threat of further trade war escalation could very well transfer into weakness in Lithuanian economy in the second half of the year, albeit there are no signs of that yet. Manufacturing is performing solidly, and we expect euro area growth to recover somewhat from soft patch as temporary factors wane.

Domestic consumption will be supported this year by rapid wage growth, some fiscal easing and modest inflation. There is a limit to growth however, as labour slack is diminishing quickly and capacity utilization remains at historically high levels. Investment to both human and physical capital is key to bringing up potential growth in the medium term.

For more information about this report, please contact:

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

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