Imbras. The Lithuanian economy started the year with growth. Is summer returning to the country’s economy?

At the beginning of this year, the Lithuanian economy returned to the path of growth. According to the preliminary estimate published by the State Data Agency, in 2024 in the first quarter compared to the previous quarter, the economy grew by 0.8, and compared to 2023 in the corresponding period, – 2.9 percent. Manufacturing, wholesale and retail trade, transport and storage activities contributed the most to such economic development.

After a break of almost two years, the volume of manufactured goods sold increased more significantly. In the first quarter of this year, sales of manufactured goods, calculated at comparable prices and after considering the effects of seasonal factors, grew by 2.6 percent during the quarter. and was 2.1 percent. higher than a year ago. The last time the sales of manufactured goods grew so rapidly was just before the beginning of the Russian war in Ukraine. During this period, sales increased in many manufacturing sectors, and they decreased more noticeably only in machinery and equipment manufacturing enterprises and enterprises performing repair and installation of machinery and equipment. The chemical industry contributed the most to the growth of manufacturing sales, which in March sales were nearly a third higher than the average in 2023, and the auto industry returned to historically high levels after a brief lull late last year. The manufacturing confidence indicator published by the European Commission allows us to expect that manufacturing production will continue to grow in the next quarter – both the expectations of companies regarding the volume of production and the need for employees are improving. However, the stabilized assessment of the level of available orders currently allows us to expect only a relatively moderate growth in sales in the coming months.

As price growth moderates and the economic situation gradually improves, retail trade turnover, as well as household consumption expenditure on goods, are increasing again. in 2024 in the first quarter, compared to the previous quarter, the turnover of retail trade, calculated at constant prices and taking into account the effect of seasonal factors, increased by 2.1 percent. and was almost 2 percent. higher than a year ago. The last time retail sales grew so rapidly in a quarter was only in 2021. in the middle In recent months, the sales of many goods increased faster, only textiles, clothing and footwear were sold a little less. The rebounding growth in household spending can be attributed both to the cessation of rapidly rising prices, to the no longer tightening of monetary policy, and to the still favorable situation in the labor market. This created the conditions for an ever faster increase in the purchasing power of households. This is also evidenced by the improving mood of households for six months already – they were probably the best in the first quarter of this year since the beginning of the COVID-19 pandemic. Households had a more positive assessment of both the changes in their financial condition over the past year, as well as their expectations for its development in the coming years – they were also affected by a more optimistic assessment of the economic development of the entire country. This had a favorable influence on households’ willingness to consume, for example, in 2024. At the beginning, the opinion on the suitability of the current larger purchases was the best since 2022. beginning

The situation in the service sector is also favorable – sales of many service activities are growing. Based on January-February of this year. according to the data, calculated at comparable prices and considering the effect of seasonal factors, the sales of the market services sector was 4 percent. higher than in the last quarter of last year and by a tenth – than a year ago. Sales increased in many activities of the service sector, their slight decline was recorded only in companies providing professional, scientific and technical services, as well as accommodation and catering services. Among the activities of the service sector, companies providing information and communication services, as well as administrative and service services stood out with extremely favorable trends. Companies in these activities have demonstrated rapid expansion and new monthly sales records in recent months. However, the mood of companies in the service sector is not optimistic. The confidence indicator of the service sector published by the European Commission in the first quarter of this year was the worst in the last four years. The mood of companies was worsened by the worsening situation of companies at the end of last year and the weakening demand for their services.

After the extremely favorable last year, the activity of the construction sector is decreasing. in 2024 January-February the average volume of work in the construction sector, calculated at comparable prices and considering the impact of seasonal factors, was 7.5 percent. higher than a year ago, but compared to 2023 in the fourth quarter, it decreased slightly more than 4 percent. In the first months of this year, the volume of work in all major construction sectors decreased. The volume of construction of residential buildings is likely to decrease in the coming quarters as well. This can be expected from the fact that both the area of ​​buildings started to be built and the area of ​​buildings allowed to be built has been decreasing for some time. The volume of construction of non-residential buildings is most limited by the economy that has not grown for some time. And the decrease in the volume of construction of engineering structures is more attributable to the extremely rapid growth last year, in other words, a high comparative base, than to a more significant decrease in the number of orders. in 2024 in the first months, the construction volume of engineering structures was almost 30 percent. higher than in 2022, and the ever-growing support flows from the European Union should support the high volume of these construction works this year as well.

The Lithuanian economy will continue to grow in the coming quarters. Such an economic development is expected because it is expected that the demand in the main trade partners will recover slightly, which will favorably affect the development of exports of goods and services. Domestic demand, especially household consumption, should also continue to grow. After starting to grow again at the end of last year, household consumption is expected to maintain this trend in the future. This will happen due to the continuing rise in the income of the population, the favorable situation in the labor market for employees, and the decreasing uncertainty of the population about the future. Although such a rapid development of investments, as was the case last year, is not foreseen, investments will contribute to the development of the Lithuanian economy this year as well. The development of the Lithuanian economy in the first quarter of this year was more favorable than expected, but there are more positive risks that can limit the development of the Lithuanian economy. A less favorable development in the economies of major trading partners, a weaker-than-currently expected recovery in household consumption or a resurgence of global geopolitical tensions are just a few of them.