Page 14 - Central & Southeast Outlook 2020

GDP growth in 2019 is seen in the 3.4-3.8% range according to forecasts from the European Bank for Reconstruction and Development (EBRD), the European Commission, the International Monetary Fund (IMF) and Swedbank.
This was helped by factors including better agricultural yields compared to 2018, which encouraged some economists to raise their initial forecasts for the year. During the year, growth was supported by “vibrant household consumption, investment and exports” according to the EBRD, which pointed to labour tax reforms that reduced the tax wedge in 2019, providing an additional boost to household spending, while investment growth remained strong as absorption of EU funds improves.
The latest data available from Statistics Lithuania shows that Lithuanian GDP growth came in at an adjusted 3.6% y/y in the third quarter, according to the statistics office’s first reading, which is just 0.4pp down on the previous quarter’s reading.
Consumer price inflation is expected to come in at 2.3% in 2019 and 2.2% in 2020, according to the IMF.
Looking ahead, the consensus is that Lithuania is heading for a slowdown in 2020.
The IMF projects growth will decline to 2.7% in 2020; the European Commission projects 2.4% growth; and, the EBRD is even less optimistic at 2.3%, having revised its forecast downwards when releasing its latest Regional Economic Prospects report in late 2019.
“Given the weak external environment expected in 2020 and 2021, growth is forecast to rely on domestic demand developments and is therefore projected to moderate to 2.4%,” said the European Commission in its Autumn Forecast.
According to Swedbank, “Next year growth will slow down further as global weakness will persist. While immediate risks related to Brexit have abated, it can still bring surprises next year. We do not expect a temporary ceasefire between the US and China to bring meaningful resolution to trade conflict and there is also the looming threat of auto tariffs.”
Concerning uncertainty surrounding Brexit, the EBRD notes that Lithuania and neighbouring Latvia are the EU’s largest exporters of wood and food products to the UK, though exports of final and intermediate goods from the eastern part of the EU to the UK are relatively modest.
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