For example, SEB Bank predicted that it would be 0.4 percent higher compared to the last three months of last year. Through the country. Because the gross domestic product (GDP) grew twice as fast during the quarter – 0.8 percent.
Overall, Lithuania’s GDP in January-March was 2.9 percent. higher than a year ago. It can be compared that Latvia’s economy also grew by 0.8 percent during the quarter, but decreased by 0.2 percent during the year. Estonia’s GDP fell by 2.1 percent overall during the year.
What led to such a really good performance of the Lithuanian economy?
First of all, of course, the extremely low base of comparison, since the beginning of 2023 recorded a recession caused by an even earlier sharp rise in energy resource prices.
It is true that the GDP of other Baltic States also declined at that time.
In turn, Lithuania’s economy has proven to be better diversified than, for example, Estonia’s. The economy of the latter country is highly dependent on the export of services, and it is also greatly influenced by the situation in the Scandinavian countries and Finland. And she wasn’t and still isn’t the best.
Secondly, as Tõnu Mertsina, Chief Economist of the Estonian Swedbank, noted, state investments in infrastructure in Estonia were much more modest than in Lithuania – in our country they increased by as much as 38 percent during the year.
This has led to more orders, primarily for companies in the construction and road construction sectors.
In addition, the industrial sector of our country is clearly recovering recently, which probably contributes the most to GDP growth.
annual production growth in the Lithuanian manufacturing sector accelerated to 2.1 percent in March. and was the fastest in 17 months, or since October 2022.
“The improvement of the situation is determined by several factors. First, energy prices have fallen, which has a positive effect on the chemical industry, whose production growth accelerated to 23 percent in March.
Secondly, the situation in the wood and furniture sectors is improving, most likely due to a decrease in the level of stocks of unsold production”, explained Aleksandras Izgorodins, economist of Citadele Bank.
Declining inflation also affects growth. In March, its annual level in the euro zone reached 2.4 percent, in Estonia – 4.1 percent, in Latvia – 1 percent, and in Lithuania – 0.4 percent.
Accordingly, this boosts household consumption. Therefore, retail trade, which is also one of the most important engines of the economy, is clearly recovering.
As Luminor economist Žygymantas Mauricas explained, the amount of goods purchased by Lithuanians has been decreasing for the past two years, despite the fact that the amount of money spent has grown extremely rapidly.
For example, in 2022 Lithuanians spent 16 percent. more than in 2021, but the amount of purchased goods decreased by 1 percent, and in 2023 spent 8.6 percent. more than in 2022, but the amount of goods decreased by another 2.1 percent.
“Such trends were caused by extremely rapid inflation, which forced Lithuanian residents to spend more and more money, but with which they could afford to buy fewer and fewer goods.
Inflation is very likely to remain low this year, ranging from minus 1 to 2 percent, depending on the dynamics of energy and food prices, so retail sales will continue to grow.
This is good news for the residents of Lithuania. Nevertheless, retail trade companies, accustomed to rapidly rising prices, will need to adjust their expectations, because it will no longer be enough to raise prices, but they will have to increase the sales volume”, warned Ž. Mauricas.
It should be kept in mind that the changes in consumption are greatly influenced by the base interest rates, which the European Central Bank is not determined to reduce yet.
If this happens in June, and the effect is felt in the fall, then more money can flow into the retail sector as loan payments decrease. Especially since a large number of residents likely postponed larger purchases at such interest rates.
Economist A. Izgorodin predicts that in general this year domestic consumption can push the country’s GDP upwards the most. After all, despite the recovering industry, the volume of exports may grow quite slowly, as the avalanche of orders from the main countries with which Lithuania trades is not yet visible.
What’s more, the Eurozone industrial confidence index was the lowest since July 2020 in April. Also, for the past few months, the level of stocks of manufactured products in this region has been decreasing, which has a strong impact on the turnover of Lithuanian industry.
True, there is better news. For example, the state incentive “Billion for business” was recently launched.
According to it, both very small and large companies will be able to receive loans (of course, under market conditions), and their amount can reach up to 150 million. EUR per company and up to 250 million euros – for several investors working on one project.
Of course, we will not feel the impact of these funds immediately, probably not even this year. Therefore, for the time being, we can only be happy that in terms of economic growth in the first quarter, compared to the last three months of last year, only Ireland (1.1%) surpassed Lithuania in the euro zone, and according to the annual indicator we were in the first place.
It will not be easy to maintain this pace, but the mood is already better.
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