VILNIUS - Retail sales in Lithuania continued surging in the first two months of the year, a clear divergence from the trend in the other two Baltic states that poses questions about the mid-term sustainability of the economy.
Retail sales jumped 24.3 percent year-on-year over the first two months of 2008 to 5.6 billion litas (1.6 billion euros), the Statistics Department reported March 28.
Turnover of food retailers increased 8.5 percent, while income of non-food retailers soared 27.5 percent in the reporting period. Textiles led the former group, skyrocketing 48.7 percent.
The spending spree is alarming considering Lithuania's increasing inflation 's 10.7 percent in February 's and the overall economic slowdown in Estonia and Latvia.
In Latvia, retail sales increased 0.2 percent in the January-February period, the country's statistics office announced March 31. Year-on-year in February retail sales were up 1 percent.
By contrast, in the same two months last year Latvia's retail sales had catapulted 28.5 percent, more in line with what Lithuania is currently experiencing.
February retail sales in Estonia grew 4 percent in constant prices compared with the same month a year ago, Statistics Estonia announced March 31. By comparison, in February 2007 retail sales had grown 21 percent.
Lithuanians consumers, it would seem, have yet to have the reality check that Estonians and Latvians recently underwent.
Granted, in February alone, retail sales in Lithuania declined 1.6 percent compared with January, the statistics department said, hinting at the start of an inevitable downward climb in consumer spending.
The Statistics Department also announced on March 28 that the consumer confidence index slid to minus 6 points in March, down from minus 4 in February. As the agency explained, the index declined as a result of worsening expectations of Lithuania's economic development with less people expecting the economy to grow and unemployment to decline over the next 12 months.
Moreover, people were less optimistic as to their possibilities to save any money in the upcoming year.
Inflation has been climbing steadily in Lithuania 's and will continue to do so for several months 's due to higher food and energy prices. Also, higher excise taxes on products such as tobacco have added fuel to the fire.
The Bank of Lithuania announced on March 26 that the current account deficit in 2007 increased to 13.7 percent 's compared with 10.8 percent in 2006. Once again Lithuania bucked the trend, as both Latvia and Estonia have seen a fall in their current account deficits. Analysts pointed out that Lithuania's deficit remains "unsustainably" high.
One can conclude that Lithuania is behind the "Baltic curve" and has yet to see its economy start to dip. The situation is particularly dangerous for Lithuanians since they are in an election year, and the political will to tackle the imbalances is minimal. The populist ruling party, the Social Democrats, has its hands tied in the usual knot of scandals and a drive to tackle its looming energy crisis after the Ignalina nuclear power plants shuts down in 2009.