Lithuania Economic Forecast

According to available data, the economy posted the EU’s largest year-on-year contraction in Q1 2023, weakening sharply from Q4. Initial data suggests the deterioration was driven by falling output in the manufacturing, wholesale and retail trade, transportation and storage, and real estate sectors. Additionally, Q1 merchandise exports fell for the first time since Q2 2020 amid the EU-wide economic lull. In the current quarter, our panelists expect brighter economic prospects, with GDP seen declining only marginally year on year. In April, inflation fell to a 14-month low, and consumer confidence strengthened to levels not seen since October 2021, boding well for private spending. Meanwhile, the downturn in the industrial sector softened in the same month, likely amid declining producer prices. Less positively, the ECB’s rate hike in May should further cap investment and spending.

In April, harmonized inflation moderated to an over one-year low of 13.3% (March: 15.2%) on cooling price pressures for food, and housing and utilities. Higher interest rates and softer domestic demand should sustain the disinflationary trend this year. Nevertheless, the average rate will remain firmly above the ECB’s 2.0% target. Energy prices are a key factor to watch.