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The Lithuanian government and the businesses can relax for now and enjoy their summer vacation – the Lithuanian economy continues growing at an accelerated pace . The Lithuanian GDP increased by 3.9% in Q2 of this year, compared to the same period a year ago. Meanwhile, in quarterly terms, the seasonally adjusted GDP increased by 0.6%. The annual growth for Q1 was revised up by 0.2 pp to 4.1%, Swedbank announced.
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Rapid export growth supported by strong foreign demand has been the surprise story of this year. The nominal exports of goods and services continued growing by double digits (in annual terms) in May-June and were supportive of economic growth. Investment goods as well as intermediate consumption goods contributed most to nominal growth of goods exports, although traditional lower value-added products, such as dairy products, also started showing signs of more rapid recovery.

Thanks to impressive export performance, the manufacturing industry has been operating at full speed (6.7% in Q2, YoY) - capacity utilization stood at the highest level in country’s history at the start of Q3. Annual growth in investment probably strengthened, as companies most likely had no more excuses in delaying it. It is likely that a more rapid distribution of EU funds also provided the necessary boost to investment growth.

Household consumption growth was supported by robust growth in wages and household lending. Although, as indicated by weaker growth in retail trade (4.7% in Q2, YoY), growth in household consumption could have eased somewhat in Q2. Growth in retail trade of food products, beverages and tobacco products has been stagnant this year, most likely due to shrinking population and changing consumption patterns, thus growth in retail trade was supported only by sales of non-food products.

Outlook: strong growth but for how long?

We expect economic growth to remain strong throughout this year. Investment growth will strengthen thanks mainly to rising public investments, but also due to faster distribution of EU funds. Meanwhile, exports are expected to stay strong due to improving economic outlook in the main export markets. Household consumption growth will be supported by growing wages and lending, but shrinking employment will be a dampening factor.

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