Flash comment: Lithuania - October 30, 2019
Gradually pressing on the breaks

Lithuanian economy is holding up better than most expected given the bleak global outlook. While season and calendar adjusted quarterly growth was only 0.1%, annual growth inched down only slightly down to 3.6 % (unadjusted). Third quarter annual growth was likely boosted by relatively better agricultural yields compared to last year. Growth for the first three quarters of the year stood at 3.9%.

Relatively high consumer confidence and strong wage growth strongly implies that consumption growth in the third quarter should have been relatively strong. However, retail trade is growing more slowly than the increase in real income would imply, it is very likely that households are taking the opportunity to save the extra income. Investments are supported by a faster roll-out of EU funds, however slower credit expansion of non-financial corporations’ signals that private sector investments slowed down somewhat.

Export of goods growth has stalled in recent months, however the solid bounce back in September manufacturing would suggest that exports recovered at the end of the quarter. But given the global outlook both manufacturing and exports are likely to move sideways for the rest of the year.

Outlook: gradual slowdown

So far Lithuanian economy is developing largely as we expected. Growth is gradually slowing down after very strong start of the year. The weakness of the German manufacturing and slow world trade growth is finally starting to affect Lithuanian manufacturers and exporters. Lithuania has been a lot more resistant to global headwinds than most expected, but the slowdown in growth is only natural when one of the main trading partners probably is in recession.

Next year growth will slow down further as global weakness will persist. While immediate risks related to Brexit have abated, it can still bring surprises next year. We do not expect a temporary ceasefire between US and China to bring meaningful resolution to trade conflict and there is also the looming threat of auto tariffs. Given the bleak medium-term outlook Lithuania as most European countries should take the opportunity provided by the negative yields to support demand, improve infrastructure, engage in education and healthcare reforms.

For more information about this report, please contact:

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

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