Ignalina closure weighs heavily on recovery

VILNIUS - The Lithuanian economy is set to resume to growth in 2010 as industries and exports recover, said SEB in its quarterly economic report released in December, reports Bloomberg. Bank analysts say the economy may expand 1 percent in 2010, compared with an earlier forecast for a 3.5 percent contraction. Looking further ahead, the state’s economy should expand 4 percent in 2011, noted the report.

Lithuania is struggling out of its deepest economic slump since the early 1990s, when the country began the transformation from a centrally planned Soviet economy to a market oriented economy. Growth in exports such as fuel sales from Orlen Lietuva, the Baltic region’s only refinery, and a slower pace of contraction in industrial output signal the economy may have bottomed.

Gross domestic product contracted 14.2 percent in the third quarter 2009, on an annual basis, compared with a 19.5 percent decline in the second quarter as industrial output stabilized. Consumer prices should probably remain unchanged in 2010 from this year, says SEB.
 Substantially lower energy supply in the three Baltic countries due to the closure of the Ignalina nuclear power station and most of Estonia’s oil-shale power plants will, together with higher demand, increase prices in the next few years, says Swedbank in a Dec. 18 report.

Rising prices of power and heating in Estonia, Latvia and Lithuania will cut the number of energy-intensive companies in the coming years, led by those in the chemical and metalworking industries, cautions the report.
The three Baltic States are on a virtual energy island, connected to the EU electricity grid only by a 350-megawatt cable between Estonia and Finland, otherwise relying completely on Soviet-era connections with Russia. “There’s an urgent need to build more connections to reduce price uncertainty and threats to energy supplies,” warns Swedbank.
Estonia’s and Lithuania’s power markets are due to be partly opened this year, and that may add to price pressures. “We foresee a decline in energy-intensive production and closure of industries highly dependent on imported energy, although some companies may be able to make technology and product changes and survive,” said analysts.

These countries have been among the most energy-inefficient in the EU, as prices are relatively low and there’s still a legacy of inefficient decision-making from the Soviet-era economy, Swedbank said. All three depend fully on Russian natural gas supplies, it added.