Lithuania's GDP still going strong

  • 2008-06-04
  • Staff and wire reports
VILNIUS - Lithuania's economy ex-panded by a robust 6.9 percent in the first quarter of 2008 compared with the same three months last year, up half a percent from an earlier preliminary estimate. In nominal terms, GDP for the period amounted to 23.9 billion litas (7 billion euros).
Construction and services accounted for the largest part of the upward revision, the national statistics department explained.

The result contrasts sharply to a drastic slowdown in the other two Baltic states and once again shows that Lithuania is behind the cycle and will see its economy undergo a slowdown later in the year.
Latvia's economy grew 3.6 percent in the first quarter, down from 8 percent in the fourth quarter of 2007, while Estonia's economy fell flat on its face and grew only 0.4 percent over the three month period, the lowest in eight years.

In Lithuania the growth of added value was the fastest in the construction sector - at 12.3 percent 's while trade, hotels and restaurants, transport and communications groups saw their value-added grow by 9.6 percent, according to the statistics center.
Retail sales continued to be robust, climbing 20 percent in the first four months of the year and comprising 11.7 billion litas, the Statistics Department announced on May 28.
In April overall retail sales climbed by an annual 19.7 percent to 3.1 billion litas. Month-on-month, the increase was 3.8 percent.

By contrast, sales in Estonia and Latvia have either fallen or posted slight gains.
Lithuania's food retailers boosted their aggregate turnover by 7.4 percent, while non-food retailers, excluding the automotive sector, recorded a 21.4 percent increase.
Writing in a daily review, Danske Bank said that it did not expect Lithuania to suffer the hard-landing scenario that appears to have gripped Estonia and Latvia.

"We do not expect as strong a slowdown in Lithuania as in the other two Baltic states, but it is likely that we could be heading for a quite sharp deceleration in growth in this and coming years," the bank wrote.
Over the past four years growth in Lithuania has been more moderate 's in the 7-8 percent range 's than it has in the other two countries. Latvia had double-digit growth three years straight. 
"The slowdown in the Lithuanian economy is basically welcome news as the slowdown is necessary to reduce inflationary pressures and bring the developments onto a more sustainable path," the bank wrote.
Inflation has been rising rapidly in Lithuania and amounted to nearly 12 percent in April, the third highest in the European Union after Latvia and Bulgaria. (See story on Page 5.)

Analysts agree that the consumer price index will continue rising in the next few months.
Also, this is an election year for Lithuania, so politicians are unlikely to be willing to make the painful decisions to cut expenditures and increase effectiveness.
Finally, the inevitable closure of the Ignalina nuclear reactor casts a shadow over the economy's long-term health as Lithuania shifts from being an energy exporter to an energy importer.

According to Danske Bank, "the largest challenge for the Lithuanian economy will be the expected energy price shock in 2010, when due to 2-3 times higher electricity prices, GDP growth could drop by as much as three percentage points."