Danske Bank maintains Lithuania’s GDP growth forecast

Danske Bank maintains Lithuania’s GDP growth forecast without alternations, 2.7 percent GDP growth is projected for 2015 and 3.1 percent for 2016.

One of the main assessment criteria regarding Lithuania was an assumption that sanctions would be lifted in one to three months. Intense diplomatic work was expected to give a result. However, new challenges have arisen instead. Tighter control of Lithuanian road carriers at the border may be motivated by any reasons. Nonetheless, the result is the loss of revenue for carriers. Meanwhile, the exporters face a disruption of the supply chain and possible breach of contracts. Lastly, any restrictions on trade result in losses for companies, sectors and economy.

As a matter of fact Russia imposed similar tight checks of Lithuanian vehicles at the same time last year. Many must have forgotten the arguments behind the last year’s move. Explaining Russia’s actions is becoming vain, people should instead focus on finding prompt solutions.

In 2013 thorough inspections were lifted after four weeks of intensive diplomatic efforts and direct dialogue with Russia, as well as support from the European Commission. That period of restrictions did not have a visible impact on Lithuania’s economy. For example, road transport sector’s revenue from foreign trade in the fourth quarter of 2013 even increased year-on-year and quarter-on-quarter. Lithuania’s GDP growth was 3 percent in the third quarter of 2013, 3.3 percent in the fourth quarter of 2013 and remained the same in the first quarter of 2014.

According to Gečiauskienė, revenue of road carriers from foreign trade is substantial and constitutes 4.3 percent of Lithuania’s GDP. That is why Danske Bank carefully evaluates the impact of trade restrictions on Lithuania’s economic growth and is concerned over possible negative impact.

Although it is unknown for how long the situation will continue but even if it does it will affect only a portion of road carriers as Lithuania’s export to Russia accounts for around 20 percent of the total export.

Next, the impact should be only on road freight transport sector because in the worst case goods can be carried using vehicles of other countries.

Lithuanian transport sector will incur losses but it is too early to talk about definite influence on GDP growth. Thus Danske Bank maintains Lithuania’s GDP growth forecast at 2.7 percent in 2015 and 3.1 percent in 2016.