Lithuanian economy faces temporary slowdown

Lithuania's GDP grew at 1.3 percent in the second quarter of 2015, according to data released by Statistics Lithuania Thursday, marking the slowest expansion in almost five years as Russian sanctions affected the small Baltic economy.

GDP growth was 1.3 percent compared to the same period last year and 0.6 percent compared to the previous three months.

"The positive change in GDP was mainly conditioned by manufacturing, construction, wholesale and retail trade activities," said Statistics Lithuania in a press release.

In the first half of the year GDP rose by 1.4 percent, compared to the first half of 2014.

Gitanas Nauseda, economist and adviser to president of SEB bank, says the result marks a small step back compared to the trends seen in the first quarter.

"In the first half of 2015, our companies have been digesting the consequences of Russia's sanctions and its fallen consumer purchasing power to our exports," said Nauseda in a commentary.

Russian market account for around one fifth of Lithuania's total exports, though majority of exports to Russia are re-exports.

Nauseda, however, remained optimistic about the prospects of the Lithuanian economy.

"The recovering economy of the euro zone, low levels of global oil prices, relatively cheap euro and domestic markets, which has been showing resistance to negative geopolitical shocks, allows us to expect improvement in macroeconomic situation in the near future," said Nauseda.

Meanwhile, Rokas Grajauskas, Baltic analyst at Danske Bank, notes that while Russia's contracting economy continued affecting Lithuania's exports, the country's business expectations have remained positive and fixed investments haven't decreased.

He also noted the positive developments in retail sales, which increased 5.4 percent in the second quarter.

"Even though crisis in Russia will persist for a while with economic improvements at this country expected at the end of the year, the successful reorientation of Lithuanian companies to the other markets will help," said Grajauskas.

The Bank of Lithuania expects Lithuania's GDP to grow at a rate of 2 percent this year before reaching 3.4 percent in 2016.