Lithuania's Economy Slows, but Industry and Consumer Spending Show Resilience

Lithuania's economic performance in the first quarter showed a slowdown, with GDP growth impacted by a harsh winter affecting the construction and transport sectors. However, the situation appears to be improving in later months, with industry gaining momentum.

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We are still too early to worry, as the gross domestic product (BVP) was affected by the cold winter.

Industrial output experienced a notable recovery in March and April, surprising many who had feared a slowdown. This resurgence is partly attributed to global inflationary pressures, particularly stemming from the Iran crisis and the blockade of the Strait of Hormuz. Manufacturers in key export markets are reportedly stocking up on goods, and Lithuanian producers are securing raw materials at lower prices before costs inevitably rise.

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Manufacturers in our key export markets are trying to stock up on goods in advance.

Consumer spending remains a primary driver of economic growth. Retail sales in April saw an impressive nearly 9 percent year-on-year increase, excluding price effects, indicating a significant rise in real trade volume. Spending on non-food items surged by almost a fifth, a trend linked to the influx of funds from the second pension pillar.

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Retail trade in April surprised with almost 9 percent annual growth, excluding the effect of prices.

Despite inflation concerns, the inflation for non-food products remained relatively low. This suggests that retailers and the value chain have not fully exploited the pension funds to raise prices, thus preserving some purchasing power for consumers. The long-term impact of the second pension pillar funds remains a subject of observation, as a significant portion is still held in bank accounts or directed towards savings products.

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Non-food product inflation was quite low. This may be a favorable signal that traders or the entire value chain did not use the second pension pillar for price increases, at least for now.