Lithuania: Economy shifts into a higher gear in Q3
Economy accelerates in Q3: GDP growth sped up to 2.4% year on year in the third quarter from 1.5% in the second quarter, according to a second estimate. On a seasonally adjusted quarter-on-quarter basis, economic growth also gathered traction, accelerating to 1.2% in Q3, compared to the previous period’s 0.3%.
Exports and households drive growth: Domestically, household spending increased 3.4% in the third quarter, which was above the second quarter’s 2.8% expansion. Less positively, public spending growth moderated to 0.4% in Q3 (Q2: +0.9% yoy). Moreover, fixed investment fell at a quicker rate of 4.2% in Q3, following the 2.6% decrease logged in the previous quarter.
Externally, exports of goods and services growth hit an over one-year high of 2.0% in the third quarter, picking up from the second quarter’s 0.8% expansion. Conversely, imports of goods and services deteriorated, contracting 0.5% in Q3 (Q2: +0.9% yoy).
Economy to gain additional traction in Q4: Our panelists see annual GDP growth ticking up from Q3’s level in Q4 and then remaining broadly stable through the end of 2025. During next year as a whole, the economy will outpace this year’s projection thanks to stronger expansions in public spending, fixed investment and exports, the latter two buoyed by lower ECB interest rates and rising EU demand. Meanwhile, private spending will continue to grow robustly. Risks are tilted to the downside due to the possibility of higher U.S. tariffs under President-elect Trump and their negative impact on EU activity.
EIU analysts commented:
“The largest contribution to growth in the third quarter came from inventories, however, which added almost 3 percentage points to the expansion. This is clearly not sustainable, but it does suggest that Lithuanian firms are relatively confident in the short-term outlook for the economy and should presage continued household and business spending growth in the coming quarters. […] Our assumption that further ECB rate cuts will continue to stimulate private consumption growth and that an expansionary budget focused on defence will inject more momentum into public spending means that economic growth is likely to continue to accelerate in 2025, to about 2.6%.”