Bank of Lithuania
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Exports are still one of the main drivers of the country’s economy, however, current forecasts predict that in 2019 export growth will decelerate which, in turn, will drag on GDP growth. Following a slower start to the year, Lithuania’s exports have rebounded in the second half of 2018, closing in on the record levels of last year in August. Given such fluctuations, how will this see-saw year end and what awaits us next year?

Comment by Mantas Vilniškis, Economist at the Macroeconomics and Forecasting Division of the Bank of Lithuania

Chemical industry is the catalyst of exports. Recently growth in exports of Lithuanian origin has been mainly fuelled by exports of chemical products and plastics as well as agricultural and food products. For example, chemical product export volumes have increased both to the US and the EU, while exports in agricultural and food products gained significant momentum in August. Such upward trends were underpinned by the increased grain exports to Saudi Arabia and the rise in exports of tobacco and its substitutes to Japan.

Lithuanian exports, excluding mineral products, to other countries showed robust growth

Having boosted exports last year, re-exports have scaled down in 2018. Last year’s upsurge in re-exports was mainly attributable to Russia’s large demand for vehicles, machinery and equipment as Russian companies replenished stocks and modernised their processes. Once the effects of this one-off factor faded away, re-exports (foreign goods exported in the same state as previously imported) have significantly dropped: having increased by 19.3% in January-August 2017, this year their volume grew by a meagre 4.3%. Additional support to the already weakening re-exports to the EU came mainly from Germany.

Exports are expected to continue on their upward trajectory in 2019, albeit below the historical highs of last year. According to Bank of Lithuania forecasts, exports of goods and services will increase by 5.3% in 2018 and 4.6% in 2019 (down from 13.6% in 2017). Export volumes of agricultural goods have seen positive shifts over the last few months, however, such spikes in growth are usually short-term. As already evident from September data, agricultural exports are not expected to continue bolstering overall export growth, especially since harvest yields in 2018 are significantly smaller than last year. On the other hand, due to expansion to new markets and production capacity increases exports of chemical products will remain a factor of positive influence.

Growth in exports will be mostly restrained by weakening foreign demand. According to WTO data on international trade, trade growth was continuing on a downward path in the third quarter of 2018. Exports of goods and services purchased on a global scale are decelerating, whereas the largest negative changes have been recorded in trade, car manufacturing and sales. The slowdown in trade is driven by, among other things, mounting global uncertainty and trade wars.

Nevertheless, Lithuania’s export market share is growing, albeit slower than before, reflecting the robust rise in wages on the back of labour market tightening (labour shortages in the country). This, in turn, stifles competition as increasing wages exert upward pressure on prices of exported goods and services.