Flash comment: Lithuania

Economic commentary by Economic Research Department October 29, 2012

GDP growth in the third quarter accelerated to 4.4%

Annual GDP growth
10.0% 7.5% 5.0% 2.5% 0.0% -2.5% -5.0% 2010 2011 Source: Statistics Lithuania 2012 -1.0% 1.1% 6.6% 5.5% 5.6% 5.7% 5.0% 3.9%

4.4% 2.1%

In line with our expectations, GDP growth has bottomed in the second quarter and grew at accelerated pace in the third quarter of this year. 4.4% growth was more than two times faster than in the previous quarter (2.1%) and was above our forecast. During the first three quarters of this year economy grew by 3.5%. The main factor of growth in the third quarter was export, but also investments and inventories probably had a positive contribution. Exports of goods during July-August were 17.6% higher than a year ago, compared with 3.8% growth in the second quarter of this year. Growth in the third quarter was also boosted by exceptionally good harvest of grains this year, which was 25.5% larger than a year ago. Household consumption growth probably remained sluggish retail trade growth eased to 3.2% compared with 4.0% growth in the previous quarter. This should not surprise, as real wages continued contracting during the first half of this year and probably stagnated in the third quarter.

0.9%

Industrial production and retail trade (excl. motor vehicles), annual growth
20% 15% 10% 5% 0% -5% -10% -15% -20% 2011 2012 Industrial production Retail trade (excl. motor vehicles) Source: Statistics Lithuania 2010

Outlook
Growth in the final quarter of this year will be somewhat slower, as one-off effects (rebound from second quarter through due to maintenance of refinery and good harvest in the third quarter) will ebb. We keep our forecast for this years growth at 3.3%, although the risks are on the upside. In a medium term growth will depend on both external and domestic factors. Timely and orderly resolution of euro area crisis could improve confidence and stimulate growth. Stable government with clear economic policy and continuation of structural reforms could improve confidence, stimulate investments and creation of new jobs. Political bickering, stalling reforms and putting priority on the short term gratification over the long term competitiveness and growth could have the opposite effect and should be avoided.

Nerijus Maiulis, Chief Economist + 370 5 258 2237 nerijus.maciulis@swedbank.lt

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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