Preliminary indicators show that economic activity in Lithuania is gradually recovering. However, while many rightly associate the recovery of Lithuania’s economy with export and industry indicators, domestic consumption is becoming a particularly important component that will strongly push the country’s economy upward this year.
After 2022-2023 energy price shock, it seems that economic activity in Lithuania is gradually recovering. The indicator of the European Commission’s (EC) economic evaluations in Lithuania is 8.7 percent. higher than in 2022 at the end of the year, when energy prices in Europe reached unprecedented heights, and from 2023 rose by 4.5 percent in March. The official GDP data, which is presented with a delay, shows that the Lithuanian economy is stagnating: in the fourth quarter of 2023 In the quarter, the annual change in Lithuania’s GDP reached +0.1 percent. excluding price increases.
Lithuania’s economy is extremely dependent on exports, so many associate its recovery with exports and industry – and there is a reason for this. EC surveys show that the level of inventories of manufactured and unsold products in the euro area industry has been steadily declining recently: in March this year, inventories in the euro area industry fell to the lowest level since 2022. July. This indicator has a strong connection with the production volumes of Lithuanian industry: the lower the level of inventories in the Eurozone industry, the better the indicators of Lithuanian industry. The falling level of stocks of manufactured products encourages the producers of the euro zone to increase production volumes again, which means new export orders for the Lithuanian industry.
Citadele Bank’s team of economists predicts 2 percent for Lithuania this year. economic growth rate. We believe that from 2023 after the stagnation that started in the second half of the year, the country’s economy will move to a growth trajectory this year. However, we associate economic growth not only with the recovery of exports and industry – we see another important component, domestic consumption, which will drive the Lithuanian economy upwards this year.
Official data already show that domestic consumption in Lithuania is gradually strengthening. For example, according to the data of the State Data Agency, the turnover of retail trade in Lithuania is growing for the third month in a row, and the mild recovery of domestic consumption has started since 2023. December. The beginning of this year was really positive: in February, the annual growth of retail sales in Lithuania accelerated to 1.6 percent. (a 3-month moving average is calculated), and consumption trends are improving both in the food (ie, first necessity) and non-first necessity segments. Retail trade of food products grew by 1.6 percent in February, while retail trade of non-food products grew by 4.2 percent. Consumption trends are clearly improving in both segments.
The main reason for the recovery of domestic demand in Lithuania is the accelerating growth of the population’s purchasing power. After the start of the energy price shock, in 2022 in the third and fourth quarters, the purchasing power of Lithuanian residents decreased by 8 and 5.5 percent, respectively. However, as wages continue to rise and energy prices fall, in 2023 at the end we already had a completely different situation: the third and fourth of 2023. quarter, the purchasing power of the Lithuanian population grew by 5.5 and 8.9 percent, respectively. We believe that the purchasing power of the population will grow this year as well. We predict that in 2024 average wages in Lithuania will grow by 7 percent, and inflation will reach 1.7 percent, which will lead to further growth of domestic consumption in Lithuania.
It seems that the recovery rate of domestic consumption in Lithuania will continue to strengthen in the near future – this is evidenced by the strong connection between the expectations of Lithuanian consumers and the growth of domestic consumption. Our calculations show that after the recovery of consumer expectations, after 7 months with 74% it is likely that domestic consumption will also start to improve – that is basically what we are seeing now. In March, Lithuanian consumer expectations reached the highest level since 2021. July, which is why we see further strengthening of domestic demand in Lithuania.
Finally, one should not forget the decline in base interest rates in the euro area. This is particularly relevant for Lithuania, because here most of the loans are issued with variable interest rates. The latest forecasts show that the European Central Bank will start reducing interest rates from June, and will reduce them 3 times this year. This is good news for Lithuanian consumers, as the decreasing burden of loan payments will further promote the growth of the population’s purchasing power and the recovery of consumption.
Press release
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– 2024-04-15 09:31:57
