Danske Bank reduces Lithuania’s GDP growth estimate to 2.5 percent

Latvian and Estonian GDP growth projections have also been reviewed. Latvia’s GDP growth rate is forecast at 2.6 percent in 2015 (previous estimate 2.9 pct) and 3.1 percent in 2016. Estonia’s economy will grow by 2.2 percent in 2015 (previous estimate 2.3 percent) and by 2.7 percent in 2016.

Danske Bank analysts say that Lithuania’s economy will lose EUR 0.5 billion due to the Russian effect. In December 2014 Lithuania’s export to Russia decreased by 18 percent, whereas in 2015 it is projected to fall by 25 percent.

In 2015 exporters will face problems not only because of the falling rouble but also because the actual Russian economy will experience a deep recession. Consumption and investment is lagging in Russia due to high interest rate, reaching 15 percent, and an increase of imported goods prices by 30-50 percent. Thus, in 2015 consumption in Russia is projected to decrease by 5.5 percent while investments by 12 percent. Russia’s economy is expected to fall by 8 percent in 2015 and by another 1 percent in 2016. As a result, import volume is expected to drop by 30 percent in 2015 and by another 4 percent in 2016.

Danske Bank Analyst of the Baltic States Rokas Grajauskas says that the reduction of import in Russia will undoubtedly affect Lithuania and other countries that are dependent on the Russian market. In 2014 Russia was Lithuania’s main export partner outside the EU. Nonetheless, despite the Russian sanctions on food products, export of goods and services to Russia grew by 4 percent to reach EUR 6.2 billion or 21 percent of the aggregate Lithuania’s export.

Danske Bank projects that this year Lithuania’s export losses to Russia will amount to EUR 1.5 billion, i.e. export of goods and services should shrink by 25 percent in 2015 and by another 3 percent in 2016.

Lithuanian traders that are engaged in re-export of investment goods to Russia, such as manufacturing machinery or technical equipment will feel dire consequences. Lithuanian transport and tourism sectors have already felt the effects of lagging Russian economy for some time now. The situation will be exacerbated not only by the slowing Russian economy or falling rouble but Russian sanctions on the import of agricultural and food products.

On the other hand, what will facilitate the situation is the fact that 88 percent of goods exported to Russia are re-exported goods. They have a lower added value for the Lithuanian economy compared to goods of Lithuanian origin. What will help withstand the impact is the fact that the euro has appreciated against the rouble significantly less than the dollar did, as well as the fact that most of Lithuanian origin goods exported to Russia are consumer goods and not investment goods.

The analyst has ascertained that there is also good news. For example, despite of losses in Russia, Lithuania’s total export in 2015 should grow by 1 percent, due to recovering economy of the euro area and new markets. Lithuanian businesses for which the Russian market closed have shifted to other markets. They have successfully increased sales not only in the euro area countries but in lesser known markets such as the United States, Saudi Arabia and Southeast Asia.

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