VILNIUS - Lithuania's third quarter GDP fell by 14.3 percent compared with the same period a year earlier, but the numbers show that the economy is rebounding off second quarter lows, reports news agency ELTA. Output in the third quarter increased compared to the previous quarter's figures.
"Over the past three months, the economy stopped falling and increased by 6 percent from the second quarter. It clearly shows that the economy has hit rock bottom. Through joint efforts we are prepared to overcome today's problems. Better results do not allow us to relax, and the government plans to implement the necessary financial consolidation and structural reforms," said Prime Minister Andrius Kubilius upon hearing the results.
"Though the pace of the fall of GDP slowed, contrary to the gloomier forecasts, the country will still have to wait for better news," say analysts at SEB bank. "The seasonally-adjusted results of the third quarter are always the best ones, thus, before officially announcing the end of the recession, it is necessary to wait for at least one or two more quarters," added the analysts.
The GDP drop was better than expected, as the median estimate of six economists in a Bloomberg survey was looking for a 19.5 percent drop in output.
The Baltic region is now facing its 'hard landing' which economists had warned of since at least 2007. The increase in Lithuania's quarterly output ended a technical recession that had lasted five quarters, according to the Lithuanian statistics office. Latvia and Estonia have yet to report their third-quarter GDP data.
Finance Minister Ingrida Simonyte said on Oct. 16 that the country may start an export-led recovery in the second half of next year. Even so, the finance ministry estimates output will shrink a further 4.3 percent in 2010. "Somewhat smaller drops were registered in the industrial sector, which will help keep the GDP figure out from the 20 percent zone," said DnB Nord Bank economist Jekaterina Rojaka. Industrial output, which accounts for about 20 percent of the economy, shrank an annual 14.6 percent in third quarter, improving from a 20.4 percent drop in the previous quarter.
Industry output has struggled in Lithuania, which has its currency pegged to the euro, as exports have sagged more than in other parts of Eastern Europe. This has forced companies to push through wage cuts to stay competitive.
Swedbank and SEB, the two biggest lenders in the region, both reported soaring credit losses in the third quarter stemming from the region's economic crisis. Government officials in all three countries maintain that they won't devalue their currencies, instead forcing down wages letting deflation boost international competitiveness. All three countries are in a race to adopt the euro, so must run tight budgets to keep in line with EU rules.
Lithuania's government has cut the budget by about 8 percent of GDP this year. Kubilius said on Oct. 16 that his Cabinet plans a further fiscal consolidation of 5 percent of GDP in next year's budget.
The government is confident that it can avoid a bail-out from the IMF after its successful 1.01 billion euro bond issue last month, says Kubilius. He says that Lithuania plans to raise more funds in international capital markets in 2010 as it battles to avoid taking Latvia's path, which was to turn to a group of international lenders, led by the IMF, for a 7.5 billion euro bail-out loan last December.
Lithuania has raised 1.48 billion euros in two bond sales since June, with more needed to finance a budget deficit projected to remain at about 9.5 percent of GDP next year. The government would turn to the IMF if necessary, said Kubilius, but the lower cost of borrowing in the latest bond issue compared with the earlier sale showed "investor trust is coming back."