Lithuania showing signs of improving output

VILNIUS - The Lithuanian government on the back of increasing export demand has raised its forecast for economic performance this year, reports Bloomberg. Rising export demand has been driving higher industrial production. GDP is forecast to rise 1.6 percent this year, compared with an earlier call for a 4.3 percent contraction, said Finance Minister Ingrida Simonyte at a press conference in Vilnius on Feb. 1. She calls for a 3.2 percent expansion in 2011.
The drop in industrial production slowed last quarter as exports started to rise, helping spur a faster recovery in the economy than the government first estimated. This bounce comes after the country suffered the EU’s third-worst recession in 2009, with GDP collapsing 15 percent.

“Competitiveness in the country’s key sectors such as industry and exports didn’t get affected by the overheating in 2006 and 2007,” Simonyte said. “These sectors didn’t get the disease and demonstrated good results at the end of 2009.”
Industrial output, which accounts for 20 percent of the economy, shrank an annual 8.3 percent in the fourth quarter, improving from a 14.7 percent drop in the third quarter. Economic recovery should help close the budget deficit to 8 percent of GDP this year from a previously estimated 9.5 percent. The government will continue with measures to cut the gap to within 3 percent in 2012 to prepare for euro adoption in 2014, said Simonyte.

“The difficult times are expected to continue in Lithuania this year, and we see the economy still contracting slightly in 2010,” said Nordea analyst Annika Lindblad. “However, an export-led recovery is expected towards year end, and the economy is seen turning to growth in 2011.”  DnB Nord Bankas economist Indre Genyte said “It’s good to see some signs of stabilization, which are helped by the industrial sector and foreign trade. Improving industries will lead the economy towards positive figures.”

Production stumbled as businesses adjusted to tighter credit conditions by pushing through wage cuts to stay competitive. “The economy will probably contract 1 percent this year because domestic demand remains weak,” said Genyte. Falling wages, growing unemployment and government austerity measures including tax increases are hampering consumer demand.

The government cut budget spending and increased taxes to save about 8 percent of GDP last year. Prime Minister Andrius Kubilius plans a further fiscal consolidation of 5 percent of GDP in this year’s budget.
Overall output shrank 13 percent year-on-year in the fourth quarter after a 14.2 percent slump in the third quarter, shows Lithuania’s statistics office. Indicating that the corner may have been turned, output last quarter, compared to the previous quarter, grew a seasonally adjusted 0.1 percent. This comes on top of a 6.1 percent third quarter expansion versus the second quarter.