Ignalina closure hits GDP growth

  • 2010-05-05
  • From wire reports

VILNIUS - Lithuania’s economy, which exited the European Union’s second-worst recession last year, contracted in the first quarter versus the previous three months after the closure of the country’s only nuclear power plant, Ignalina, reports Bloomberg. Output fell a seasonally adjusted 4.1 percent, compared with a revised 1.3 percent expansion in the previous quarter, said the Vilnius-based statistics office.

Gross domestic product shrank an annual 2.9 percent after a revised 12.1 percent decline the previous quarter. The median estimate of seven economists in a Bloomberg survey was for a 4.5 percent annual drop.
The recovery of the Baltic nation’s economy, which exited its economic recession in the third quarter of last year, is more protracted, weighed on by the closure of the Ignalina nuclear power plant in December, which is pushing up costs for both industry and consumers.

“The effect of Ignalina is evident: higher costs for heating and electricity had a negative effect on consumer demand,” said the chief economist at DnB Nord Bank in Vilnius, Jekaterina Rojaka.  “The economy is clambering upwards from the bottom, but the return will take time, a sudden rebound won’t happen” as “fragile domestic demand” remains.
The annual contraction was deeper than the projected 2 percent drop for the first quarter because of an “unusually cold and snowy winter,” said the Finance Ministry. The ministry said it was sticking to its 2010 growth forecast of 1.6 percent and that output may expand an annual 4 percent in the second quarter.

Producer prices surged 7.3 percent in the first quarter, driven by an increase in electricity costs after the plant shutdown of the Soviet-era nuclear plant. “We are still more pessimistic in our forecasts on GDP than the Ministry of Finance and the central bank,” said Danske Bank economist Violeta Klyviene in Vilnius. “However, on the key issues of economic outlook this year, there are no major differences. The general opinion is that this year’s GDP should be significantly better than 2009, but whether we will have a positive growth rate is still not clear.”

Falling wages, growing unemployment and government austerity measures are hampering consumer demand in the Baltic region. Lithuanian retail sales fell an annual 16 percent in February. Domestic demand is expected to remain weak in 2010 across the Baltic region as rising unemployment and wage cuts hamper consumption, reported Swedbank, the largest lender in the region, on April 22.
Lithuanian Prime Minister Andrius Kubilius’ measures helped cap the public deficit at 8.9 percent of GDP, without having to resort to a bailout. Without wage cuts, tax increases and other spending cuts, the deficit might have swelled to 17.5 percent, he said on April 15.

Exports are growing faster than the government’s earlier expectation and they may reach “pre-crisis” levels this year, noted Finance Minister Ingrida Simonyte. Foreign sales grew 6.3 percent through the first two months this year, driven by exports of fuels from Orlen Lietuva, and of plastics and wood. Industrial output, representing about 20 percent of the economy, shrank an annual 4 percent in the first quarter, improving from an 8.3 percent drop in the fourth.
Industries posted their first annual increase in 17 months in March. The industrial confidence index rose in the first three months to a minus 11 level in March, up from a minus 32 level in December on an expected increase in export opportunities, said the statistics office.