In April, industrial growth accelerated further – manufacturing was 8.3% higher than a year ago. Growth remains broad-based – production volumes increased in many industrial sectors. Production of chemical goods, electronics, computer equipment, vehicles, wood, rubber, and plastics grew at double-digit rates.
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Business expectations also improved and rose to the highest level in the past five years. However, this was mostly influenced by sectors oriented towards the domestic market – retail and service companies, which were also boosted by spending from future pensioners. Industrial expectations and export order levels slightly decreased but remain higher than the long-term historical average.
Not surprisingly, retail growth accelerated to 8.9 percent – some residents rushed to spend savings accumulated in pension funds. Retail sales of household appliances, electronics, and furniture grew by more than a fifth. Data from “Swedbank” shows that residents have already spent about a quarter of the savings withdrawn from pension funds.
However, in recent weeks, the pace of spending growth has slowed significantly – it seems that many residents will not spend their savings on short-term needs but will invest them. It is likely that further consumption growth will return to natural levels and depend on changes in purchasing power – wage and price growth.
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In May, the expectations of Lithuanian residents improved – both personal finances and the country’s economic prospects were better assessed. Although inflation accelerated and exceeded 5 percent, the purchasing power of many residents did not decrease – in the first quarter of this year, the average wage increased by more than 9 percent. So far, inflation has remained very localized – the rise in oil and fuel prices did not affect the prices of many other goods and services. Geopolitical processes in the Middle East are difficult to predict, but so far it seems that inflation has already approached its peak and will not reach double-digit rates.
So far, concerns about higher price levels and possible demand shocks in export markets remain just concerns; Lithuania’s economic growth continues and remains one of the fastest in the region.
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