Exports remain bright spot in GDP growth

VILNIUS - Lithuania’s fourth quarter economic growth accelerated to the fastest pace in more than two years as recovering demand across Europe propelled exports to the highest level on record, reports Bloomberg. Gross domestic product grew an annual 4.6 percent, the quickest rate in 10 quarters, after a 1.1 percent increase in the previous three months, the Vilnius-based statistics office said in an e-mailed statement on Jan. 28. The median estimate of five economists in a Bloomberg survey was 3 percent. Output expanded a seasonally adjusted 1.7 percent from the previous quarter.

The Baltic region of Estonia, Latvia and Lithuania is recovering from the world’s worst recession in 2009. The Lithuanian economy, which contracted 14.9 percent that year, relies on exports for about two-thirds of output, and benefited from rising demand in Europe.
“We’d like to see our major markets in the European Union growing, because we’re very much dependent on exports,” Prime Minister Andrius Kubilius said. “We see our exports are recovering and we’d like to see such developments continuing through the whole year.”

For all of 2010, the economy grew 1.3 percent, compared with the Finance Ministry’s November estimate of 1.6 percent growth. Lithuania sends 62 percent of its exports to the EU.
Industrial output, which represents about 20 percent of the economy, increased an annual 16.5 percent in the fourth quarter, compared with a 7.8 percent gain in the previous three months. Exports grew an annual 47.7 percent in November on faster fuel and fertilizer sales, according to the latest data available.
Retail sales expanded an annual 8.5 percent in the fourth quarter, marking the first annual increase since the third quarter of 2008.

The investment banking firm Finasta was looking for economic growth of close to one percent for 2010; the economy is still stagnant in many sectors, thus the gross domestic product growth last year represents merely statistical, rather than actual, improvement, the company announced, reported The Lithuania Tribune. Today, Lithuanian GDP is approximately at its 2006 level. The export growth was outstanding and currently it is above pre-crisis level, the financial group writes.
No surprise, the hardest hit economic sector was construction, where value added dropped back to 2003 levels.

In 2011, according to the bank’s forecasts, Lithuanian GDP will grow 3.5 percent. However, even its optimistic scenario does not allow for the economy to return to its pre-crisis peak earlier than in late 2014, said the company.
Last year was a period of stabilization in the Lithuanian economy. Starting from the second quarter, GDP posted annual growth. Today there are only the first signs of economic improvement. The economy is approximately 15 percent below its pre-crisis peak.

In 2010, the Lithuanian economic growth was driven by external demand. The producers directly or indirectly made use of the global economic recovery, which was fostered by vast government stimulus packages and strong Asian economies. Lithuanian real export value has grown two percent above its pre-crisis level. However, the effects of foreign markets have not yet reached the domestic sectors. They remain constrained by high unemployment and stagnant wages.
Household consumption is 19 percent and gross fixed capital formation 35 percent below their peaks in 2008 and can be compared to their values in 2005. No surprise, the construction activities were the hardest hit. The sudden halt in the credit process and significant deterioration in household finances dragged value added generated in construction back its levels in 2003.

In 2011, Finasta expects a pick-up in economic activity. The economic recovery should remain linked to the export markets, but more evident signs of domestic demand recovery should appear. The company expects the labor market to bottom out and the credit market to gain some momentum this year. Nevertheless, Lithuania’s economic growth should remain mild as 2011 global GDP forecasts seem unimpressive so far.