Lithuania benefits from weakening euro, analyst says

The latest SEB Lithuanian Macroeconomic Review states that prices of energy resources are pushing Lithuania towards deflation. Therefore inflation forecast for 2015 has been revised from 0.4 to -0.4 percent, and for 2016, from 0.7 to 0.3 percent.

According to Gitanas Nausėda, advisor to SEB Bank president, “silent” currency wars are ongoing and certain countries are attempting to solve their economic problems this way. “One of the ‘silent wars’ regions is the euro area, which apart from long-taking structural reforms has two economic recovery levers – quantitative easing and weak euro,” said Nausėda.

The economist says that weak euro helps restore competitiveness of European goods in dollar countries, i.e., the United States and Southeast Asia.

“Lithuanian producers can expect benefit from the process by exporting goods to the aforementioned regions or indirect benefit from faster development of Germany, France and other exporting countries”, said Nausėda.

The analyst said that the state of Lithuania’s domestic market is not as impeccably strong as it seems from the first glance. Although consumer confidence has increased in Lithuania to record heights, but this optimism was affected by cheapening energy resources which enabled households to divert funds and purchase other goods or simply save.

“Consumer moods would change if prices of fuel and other energy resources started growing again due to increasing global oil prices or weakening of the euro against the dollar,” said the economist.

Furthermore, retail trade data analysis of January-February 2015 shows that yearly turnover growth of most goods has slowed down. However this was significantly affected by people getting used to the new currency.

According to Nausėda, consumer confidence can be sustained by the growth of the average wage and unemployment reduction.

SEB economists predict that in 2015 and 2016 the average wage will grow by 4.2 and 4.8 percent respectively. On the other hand, due to predicted deflation, the real wage should grow more than the nominal wage – this would increase purchasing power and consumption in coming years.