Lithuanian GDP surprised to the upside as it finished 2016 with growth pushing to 2.2% y/y, according to a first estimate released by Statistics Lithuania on January 30.

If confirmed, the reading would see the economy expand significantly faster than the 1.8% expansion in 2015. A fourth quarter surge to 3% y/y growth, the fastest rate since the third quarter of 2014, helped push the year's activity higher.

The reading in October-December is 1.3pp faster than expansion that took place in the third quarter. It also marks a return to accelerating growth after slowdowns in the second and third quarters of last year. 

Growth in 2016 was driven by household consumption as retail trade increased by 6.9%, putting in acceleration towards the end of the year, Swedbank observes. “It is likely that investments picked up as well and inventories no longer contributed negatively to GDP growth in the last quarter of 2016. Exports of goods could have recovered towards the end of last year as indicated by stronger manufacturing performance."

In the fourth quarter, GDP growth was mainly driven by wholesale and retail trade, repair of motor vehicles and motorcycles, transportation and storage, accommodation and food service, and agriculture, Statistics Lithuania notes. A more detailed estimate of GDP growth in the third quarter will be published on March 1.

Swedbank is optimistic for the medium term. “We expect economic growth to accelerate to 2.8% this year, before easing to 2.5% in 2018. Growth in exports and investments is expected to pick up this year, [while] household consumption will remain the main driver of growth,” the bank notes.

“However, growth in household consumption will ease as real wage growth subsides. Investment growth will strengthen thanks mainly to rising public investments, but also due to faster distribution of EU funds," it adds.