Lithuanian economy beginning to recover, Danske Bank says

This year Lithuania was hit hardest by the decrease of demand in the Russian and other markets of the Commonwealth of Independent States (CIS) and by the Russian embargo on food products. Export of Lithuanian-origin goods to Russia dropped by 55 percent this year, while re-export dropped by 40 percent.

According to Rokas Grajauskas, Baltic analyst at Danske Bank, although Lithuania’s trade data for September is yet to be announced, Russia has already declared that its imports in 2015 shrunk the least in September. He says the decline of Lithuanian exports will have subsided in statistics for September. This is the factor responsible for better trade balance in the third quarter.

Improving situation of exports is noticeable in Lithuania’s food production sector. In August 2015, compared with August 2014, Lithuanian food processors boosted their sales by 8 percent and nearly returned to the level of August 2013. This year Lithuania is leading the Baltic States based on the production output growth. In spite of problems in the food sector, production in January-August grew by 5.9 percent and excluding production of petroleum products grew by 4.7 percent.

“Rapidly growing wages and the tendency of Lithuanian consumers to spend nearly the entire income means that consumption growth is continuing. In 2015, retail trade turnover growth was the fastest in the third quarter. In the third quarter of 2015 year-on-year, retail trade increased by 6 percent,” said the analyst.

There are no signs of investment slowdown either. In the first half of 2015, the total investment growth reached nearly 11 percent. The main engine of such growth was business investment and the housing renovation programme, which reached its peak in the summer. Based on the programme, construction work worth a total of EUR 150 million may be carried out in 2015, which will account for approximately a third of the total construction volume increase.

Next, the impact on the Lithuanian economy of the drastic contraction of demand in the Russian market will completely disappear by the end of the year. According to the analyst, because of this, Lithuania’s economic growth should accelerate to 2.1 percent in the fourth quarter. This means that the aggregate economic growth in 2015 should stand at 1.7 percent. 2.8 percent growth is forecast in 2016, while in 2017 it should stand at 3.2 percent.