The eurozone economy fell into a technical recession in the first three months of 2023, data from statistics agency Eurostat showed last month. Gross domestic product (GDP) for the 20-country eurozone fell by 0.1% in the first quarter compared with the final quarter of 2022, when GDP also slipped by 0.1%. Two successive quarters of contraction are commonly described as a technical recession. How to bounce back economic growth?

A recession had been expected towards the end of last year as the eurozone wrestled with high energy and food prices and as a post-pandemic spending boom faded. Initial estimates had suggested the region had avoided this.

Along with Germany and Ireland, GDP also declined quarter-on-quarter in Greece, Lithuania, Malta, and the Netherlands.

Eurostat said that household spending was stripped 0.1 percentage points, public expenditure 0.3 points and inventory changes 0.4 points from quarterly GDP. Gross fixed capital formation added 0.1 points and net trade a further 0.7 points as imports declined.

In this scenario, the Bank of Lithuania published the provisional data on direct investment (DI) for Q1 2023. According to the latest data release:

• the flow of foreign direct investment (FDI) in Lithuania amounted to €582.5 million in Q1 2023, which was driven by the growth in reinvestments (€255.7 mln) and debt instruments (€253.8 million).
• the largest increase in investment was observed for Latvian (€291.3 mln), Swedish (€93.8 mln), and Luxembourg (€91.5 mln) capital companies, whereas the sharpest decline was recorded for the Polish (€205.9 mln) ones;
• in terms of economic activity, investments in companies engaged in financial and insurance activities (€283.9 mln) and wholesale and retail trade as well as repair of motor vehicles and motorcycles (€231.4 mln) were the ones to stand out;
• FDI income by non-residents amounted to €544.5 mln in Q1 2023 and was 19% lower year on year. Dividends (€259.1 mln) and reinvestments (€255.7 mln) accounted for the bulk of income. The largest share of FDI income was earned by Swedish (€151.1 mln) and Latvian (€119.2 mln) investors;
• cumulative FDI in Lithuania rose by 10.3% over the year and amounted to €31.7 bn or 46.5% of GDP on 31 March 2023. The largest investors in Lithuania included Germany (€5.7 bn), Estonia (€3.6 bn), Sweden (€3.4 bn), the Netherlands (€2.9 bn), and the UK (€2.4 bn). The largest share of investments was attracted by companies engaged in financial and insurance activities (34.4%) as well as manufacturing (15.3%);
• the flow of Lithuania’s DI abroad was positive in Q1 2023 and amounted to €532.4 mln. The largest investment flows were recorded for the US (€262.2 mln), Spain (€168.8 mln), and Poland (€150.3 mln);
• in terms of economic activity, the largest investments were directed to enterprises engaged in professional, scientific, and technical activities (€272.6 mln) as well as administrative and support service activities (€212.9 mln);
• DI income earned by Lithuanian investors abroad in Q1 2023 amounted to €317.9 mln. The majority of these (€298.8 mln or 94%) were reinvestments. Most income was earned from investment in the US (€264.1 mln);
• Lithuania’s cumulative DI abroad grew by 22.8% over the year and stood at €13 bn as of 31 March 2023. Lithuania’s DI in the EU Member States accounted for 59.9%, while in the US for 35% of Lithuania’s total DI abroad.

Conversely, Reuters reported that employment growth accelerated at the start of 2023, rising to 0.6% in the first quarter from 0.3% in the fourth quarter of 2022, in line with earlier estimates. That was 1.6% up year-on-year.

On a quarterly basis, employment grew in every country except Greece, Lithuania, and Slovakia.