Consumer expectations threaten recovery

  • 2011-10-12
  • From wire reports

VILNIUS - Swedbank Lithuania’s chief economist Nerijus Maciulis said that household spending should be able to offset decreasing exports, even as confidence levels in all economy sectors dropped in September, reports ELTA. Further development of Lithuania’s economy, he adds, is highly tied to the global economic situation. As a return to recession in the eurozone and the U.S. has begun, the expectations of Lithuanian residents and companies are likely to fall, which in turn would prompt savings trends and deter consumers from spending and investing, the economist said.

At present, unlike in 2008, there are no objective reasons why people should reduce their consumption or companies should postpone their investment plans. Unfortunately, expectations-driven self fulfilling crisis are not a rare phenomenon, Maciulis said. The growth of exports, which so far probably has contributed the most to the recovery of the economy, should keep on shrinking in the future as well. It is likely that exports may grow by 10 percent in 2012, regardless of the impact of price changes.

Russia is Lithuania’s biggest foreign trade partner, to which 16 percent of all Lithuanian goods are exported. However, only 5 percent of those exports are of Lithuanian origin. Meanwhile, the situation in Germany is the opposite as 9 percent of all goods are exported there, but as many as 13 percent of the products are Lithuania-made. Relatively low volumes of Lithuanian origin goods go to the majority of CIS countries.

Even though the Belarusian ruble has been devalued by over 60 percent since early 2011, that most probably will not have a significant impact on the Lithuanian economy as only 1 percent of Lithuanian origin exports go to the neighboring country. Therefore, Lithuania is more dependent on the EU economy rather than the situation of the Eastern countries, the economist says.

As exports of Lithuanian origin goods are increasing, unlike when re-exports grow, there are investments made, more new jobs and added value created. Therefore, it would be a worse impact on the real economy if demand declined from EU member-states, rather than from the CIS countries.