Investment pushes Lithuanian GDP growth to 3.4% y/y in Q3

Investment pushes Lithuanian GDP growth to 3.4% y/y in Q3
By bne IntelliNews December 3, 2017

Lithuanian GDP grew an adjusted 3.4% y/y in the third quarter of 2017, Statistics Lithuania confirmed in a second estimate released on December 1. Dynamic growth in investment made up for weaker expansion of household consumption, the key driver so far.

The reading marks a slowdown of 0.7pp on the revised seasonally- and working-day adjusted growth of 4.1% in the second quarter. However, the expansion maintains the country's economy on track to a much steeper growth trajectory than seen in 2015 and 2016, when growth struggled to exceed 2% y/y.

The annual growth in July-September is a result of investment picking up, Swedbank points out.

“Record high capacity utilisation, labour shortage and strong export demand growth added to the need to increase investments. In addition, EU funds finally started to be distributed more actively,” Swedbank wrote.

On the other hand, household consumption recorded weaker growth in the third quarter, the bank adds. 

In quarterly terms, GDP grew an adjusted 0.1%, clearly slower than the 0.6% quarterly expansion recorded in April-June. In unadjusted terms, GDP grew 3.1% on the year and 9.3% q/q; the latter figure is an upward revision of 0.1pp compared to the first estimate.

The outlook is positive. Growth is expected to come in at 3.8% in 2017 before slowing down to 3.5% in 2018, according to Swedbank. 

"Household consumption will remain a key part of economic growth next year even though we expect it to grow at a slower pace. Investments should keep growing fast as it will be difficult to meet demand for exports with labour market this tight,” the bank wrote.

“The EU funds and still favourable borrowing conditions will provide an extra stimulus to investment,” it also said. Exports growth is expected to maintain a solid growth rate, although slower than in 2017, as cost and price competitiveness will continue to deteriorate.