Flash comment: Lithuania

Economic commentary by Economic Research Department January 30, 2013

Growth in 2012 slightly above expectations

Economic growth, yoy
15% 10% 5% 0% -5% -10% -15% -20% 2007 2008 2009 2010 2011 2012
Source: Statistics Lithuania

Annual GDP growth slowed down from 4.4% in the third quarter to 4.0% in the fourth quarter of last year, but during all 2012 economy grew by 3.6% - slightly above our expectations (3.3%). According to the preliminary data, compared with third quarter, economy expanded by 1% (s.w.d.a.). In the fourth quarter GDP in current prices totalled EUR 8.3bn. Annual industrial production growth increased from 7.1% in the third quarter to 9.3% in the fourth quarter of last year. Main GDP growth driver was exports and net exports continued contributing positively to growth. It is likely that inventories did not decrease and investment increased a bit faster in the last quarter as well. Last year value added rose in all economic sectors, except construction. GDP per capita increased by 4.8% in a year and reached EUR 10,876.

Industrial production and retail trade (excl. motor vehicles) growth, yoy
20% 10% 0% -10% -20% -30% 2007 2008 2009 2010 2011 2012 Industrial production Retail trade (excl. motor vehicles)
Source: Statistics Lithuania

Outlook
Manufacturing sector demonstrated resilience to euro zone crisis, however, it affected Lithuanian economy indirectly through lower expectations, which resulted in weaker than expected in mid-2012 investments. However, we forecast that companies will start catching up for underinvestment already this year as capacity utilisation rates are high and companies have the resources. GDP growth will increase to 4% in 2013 and investments will be one on the main drivers. However, there is still some uncertainty regarding domestic economic policy. On the one hand, the risk that some unpopular reforms (reform of higher education, labour market liberalisation) will be reversed remains. This might just make the goal of welfare state harder to achieve as it would harm competitiveness and investment environment. On the other hand, tax reform might contribute to better performance if labour taxation is lowered (by finding other sources than increase in capital taxation; for example elimination of income tax exemptions) and structural reforms are continued. Vaiva ekut Senior Economist +370 5 2582156 vaiva.seckute@swedbank.lt

Confidence indicators
30 20 10 0 -10 -20 -30 -40 -50 -60 -70 2010 2011 Economic s entiment Construction (5%) Services (30%) 2012 Indus trial (40%) Retail trade (5 %) Consumer (20%)
Source: Statistics Lithuania

Swedbank Economic Research Department SE-105 34 Stockholm, Sweden ek.sekr@swedbank.com www.swedbank.com Legally responsible publisher Cecilia Hermansson, +46 8 5859 7720

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