Still strong growth, but looming risks ahead
Still strong growth, but looming risks ahead

Against most expectations, the Lithuanian economy bucked the trend in the first half of 2019 – GDP has increased by 4% (when season and calendar adjusted) and 4.1% (without the adjustments), compared to the same period a year ago. Meanwhile, in quarterly terms, seasonally adjusted GDP for Q2 has increased by 0.8% (revised down from 0.9%).

Similarly to the previous quarter, growth was mainly influenced by the increase of investments, exports and steady household consumption, that grew by 8.1%, 4.1% and 3.7% respectively when compared to 2018. Consumption remained the main driver of growth and contributed 2.7pp second quarter annual growth.

Annual growth in manufacturing and exports of goods of national origin seem still strong but losing the momentum when looking to the data of the last few months. Value of exports did comprise nearly 92% of country‘s GDP in June and did reach all-time highs.

Surprisingly, industrial confidence, when compared to July, has increased by 6% in August.

                 

In annual real terms, retail trade has increased by 4.5% in the second quarter. Domestic demand is still supported by a solid wage growth and improving migration trends (net immigration reached 6,000 during the first seven months of this year). Moreover, Lithuanians’ assessment of current conditions climbed to the highest level in almost 6 years.

 

Outlook: growth to slow down in the second half this year and 2020


We have revised this year’s GDP growth forecast from 3.0% to 3.7%, However, we think that the German weakness will finally catch up and manufacturing and export growth could ebb towards the end of this year. Hence, next year is likely to be much gloomier: GDP growth will probably not exceed 2.0% in 2020 before rebounding to 2.5% in 2021. The main reason for this notable slowdown is related to external shocks: weak German manufacturing, disorderly Brexit and further trade war escalation. However, negative effects will be manageable, as the economy remains well balanced.

For more information about this report, please contact:

Greta Ilekytė, +370 5258 22 75, greta.ilekyte@swedbank.lt.

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