Investment and exports to support solid growth in 2018

Country Rating BB1


  • Low systemic political risk
  • Good international relations, EU and NATO membership
  • Eurozone membership provides for low transfer and convertibility risk
  • Sound public finances and access to international capital markets
  • Strong business environment


  • High external debt burden
  • The industry is dominated by one large refinery complex, Orlen Lietuva, which accounts for around 20% of total industrial output and a significant share in total exports
  • High export and import dependence on Emerging Markets, notably Russia (here especially on crude oil imports)



Economic Overview

Rebounding investment boosts growth

Real GDP growth accelerated from +2.3% in full-year 2016 to +4.1% y/y in H1 2017, mainly thanks to a strong rebound in fixed capital formation. In Q3 2017, growth eased to +3.1% y/y as, despite rapid wage gains, rising inflation and declining employ-ment contributed to a slowdown of consumer spending. This took the average GDP growth in the first three quarters of 2017 to +3.8% y/y. Fixed capital formation rose by +6.6% y/y in Q1-Q3, driven by private investment, but inventories subtracted -0.4pp from growth. Consumer spending increased by +4% and public spending by +1.5%. External trade activity has exceeded expectations in 2017 to date, benefiting from favorable trends in global trade. Both exports and imports rose by +12.2% y/y, so that net exports made a small contribution of +0.1pp to Q1-Q3 growth.

Looking ahead, investment and exports should support economic activity in the next two years while consumer spending is expected to moderate somewhat as a result of higher inflation and falling employment due to negative demographic trends and emigration. Overall, we forecast full-year real GDP growth to edge down from an expected +3.5% in 2017 to around +3.2% in 2018 and +3% in 2019.

Stable macroeconomic fundamentals

A hike in excise duties at the start of 2017, higher prices for fuels, foodstuff and related services as well as rapid wage growth pushed up consumer price inflation to a six-year high of 4.8% y/y in September 2017, before it eased to 4.4% in October, taking the average in the first ten months to 3.6%. We fore¬cast inflation to moderate but remain elevated over the next two years, averaging 3.7% in 2017, 3.5% in 2018 and 2.9% in 2019. Such rates should not raise any serious concern.

Public finances are sound. As in 2016, we expect the annual budget to come in close to balance in 2017-2019 while public debt should fall back to just below 40% of GDP in 2018.

The current account deficit narrowed in the first nine months of 2017 and we expect it at around -0.5% of GDP in 2017 as a whole. In 2018-2019, the annual external shortfall is forecast to widen to still modest ratios of -1% or so of GDP, as a result of gradually rising energy prices.

Gross external debt rose from 70% of GDP in 2014 to a relatively high 86% in 2016 and is forecast to stabilize around that level. Hence it remains a cause of some concern and close monitoring is appropriate.

Last review: 2017-12-01