We suspect that GDP growth in the recent quarter was quite balanced. Household consumption growth partly reflected by retail trade data remained robust. In the 1st quarter retail trade volume rose by 4,2% year-on-year, reports BC the economist from DNB Bankas Donatas Brazdžius.
Manufacturing excluding mineral products grew 9,1% in the 1st quarter versus the same quarter of last year. This indicates good progress in the wide range of manufacturing activities. Another growth driver was construction industry.
Although we do not have yet construction data for the 1st quarter, we know that the number of real estate transactions in the 1st quarter increased by impressive 43% on a year-on-year basis. This heightened activity in the real estate sector was partially driven by the anticipation of the euro introduction. People perceive greater uncertainty about prices and value of money, and therefore choose to respond making real investments.
Other investment spending should also support GDP growth. Although it is hard to forecast investment spending for one quarter, in the long-run we expect accelerated increase in investments. Investment weigh in GDP is low in Lithuania looking at both the historical perspective and the context of the EU. Better expectations and confidence, also higher labor costs and low interest rates should encourage businesses to invest. EU funds should also raise investment spending, particularly in road and rail infrastructure. We eagerly wait for higher spending on equipment and machinery.
This type of investment helps to improve business competitiveness, and so far remains well below investment levels seen in 2007.
The contribution from exports to 1st quarter GDP growth was probably immaterial. In the future net exports will play a lower importance in the economic growth.
Looking at the remaining 2014, economy should sustain similar pace of growth. Better households' expectations and spending, vigorous real estate market, and accelerating demand for investments may warrant GDP growth above 3%. However, heightened risks in Russia, the key export market, and depreciated ruble will have a negative effect on Lithuanian economy. Thus we view 3% growth for the rest of 2014 as our base case.
