Strong Lithuanian economy growth despite Euro area weakness

Strong Lithuanian economy growth was impressive, it expanded 3.9% annually in this first quarter of 2019. Meanwhile, season and calendar adjusted quarterly growth stood at 1%, Swedbank announced. 

Lithuanian economy 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. 

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 Lithuanian economy 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.