Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

The Lithuanian Economy, No. 1/2011


Published on

The Lithuanian Economy - 2011 January: Industrial production is booming, but so are producer prices

  • Be the first to comment

  • Be the first to like this

The Lithuanian Economy, No. 1/2011

  1. 1. The Lithuanian EconomyMonthly newsletter from Swedbank’s Economic Research Departmentby Nerijus Mačiulis No. 01 • 31 January 2011Industrial production is booming, but so are producer prices  Lithuanian industrial production went up by 6.6% in 2010. Most of the increase may be attributed to the recovering manufacturing sector, which increased by 8.2% last year. Although industrial production is still behind its peak, it is expected to reach new highs this year.  In 2010, manufacturing of paper products, chemicals, and pharmaceuticals recovered quickly, and exceeded pre-crisis levels. Manufacturing of wearing apparel and non-metallic mineral products, rubber and plastic products, and motor vehicles grew at the fastest pace, but still lagged behind boom-year levels.  The producer price index in 2010 increased by more than 10%. The main factors behind this increase were rising prices of commodities and strong external demand. So far, this has had little impact on consumer prices in the local market; unfortunately, it is only a matter of time until the impact is felt.Industrial production approaches pre-crisis After a 14.6% decline in 2009, industrial productionlevel recovered last year and is approaching the pre- crisis level. Compared with 2009, industry grew byIndustrial production in emerging markets is already 6.6% in 2010, and manufacturing enjoyed a solidsome 15% above the pre-crisis levels reached in 8.2% growth.2008. However in euro zone countries and the US itis still around 5% below peak levels. Industrial Growth of manufacturing, excluding refinedproduction in Lithuania, as in the latter countries, is petroleum products, was even faster in 2010,still below its peak level (in 2010 it was 9.8% below reaching 10%. The continued contraction of thethe level reached in 2008); however, it is supply of gas and electricity was slower (-5.7%)approaching this level rapidly and should surpass it than in 2009 (-6.9%), and probably reflects higherthis year. energy efficiency in manufacturing and saving in households. Furthermore, the biggest contraction inIndustrial production and manufacturing, 1Q 2005 – 4Q 2010 the supply of gas and electricity was recorded in the(Left scale: index, 2005=100; Right scale: LTL million) second and third quarters (10% and 12.9%, 130 18,000 respectively) — the period when one of the largest 125 16,000 factories in the chemical industry stopped most of 120 14,000 its operations. 12,000 115 The growth of industry in the last quarter of 2010 10,000 110 accelerated to 16.5% after 7.8% and 4.6% 8,000 105 increases in the third and fourth quarters, 6,000 respectively. Manufacturing accelerated even faster 100 4,000 and in the last quarter was 21% higher than a year 95 2,000 ago. The fourth-quarter growth of manufacturing, 90 0 excluding refined petroleum products, was a bit 2005 2006 2007 2008 2009 2010 more modest and was 19.9% higher than a year Ref ined petroleum products Electricity , gas, steam and air conditioning supply ago. Mining and quarry ing Manuf acturing, except petroleum products Manuf acturing, index (ls) Manufacturing growth to continue Industry except construction, index (ls) Source: Statistics Lithuania The performance of manufacturing in 2010, although strong, was uneven. Production of paper and paper products, pharmaceuticals, and chemical Economic Research Department. Swedbank AB. SE-105 34 Stockholm. Phone +46-8-5859 1000 E-mail: Legally responsible publisher: Cecilia Hermansson, +46-8-5859 7720 Nerijus Mačiulis + 370 5 258 2237. Lina Vrubliauskienė +370 5 258 2275. Ieva Vyšniauskaitė +370 5 258 2156.
  2. 2. The Lithuanian Economy Economic Research Department, Swedbank Nr 01 • 31 January 2011products exceeded or came close to previous Manufacturing sectors, 1Q 2005 – 3Q 2010highs. Some sectors, however, are still well below (Index, annual change, %)their best years – including manufactures of motor 160vehicles, textiles, electrical equipment, and non- 140metallic mineral products. The speed of decline in2009 and recovery in 2010 depended on the 120orientation of the producers: in general, export-oriented sectors overperformed those that are 100dependent on domestic demand. 80Leading manufacturing sectors, 1Q 2005 – 3Q 2010 60(Index, 2005=100) 260 40 2005 2006 2007 2008 2009 2010 240 Rubber and plastic products 220 Electrical equipment Furniture 200 Food products Source: Statistics Lithuania Wearing apparel 180 160 Lithuania does not (and should not) aspire to be 140 recognized among leading industrial countries, but 120 in a medium term growth of the economy will have 100 to rely on manufacturing, which is expected to 80 continue double digit growth in the first half of 2011. 2005 2006 2007 2008 2009 2010 Paper and paper products Producer prices reflect global Chemical products developments Pharmaceuticals Source: Statistics Lithuania Machinery and equipment n.e.c. After a16% spike in prices of industrial production in December, average annual producer price inflationOther manufacturing sectors, such as rubber and in 2010 reached 10.3%. This is a significantplastic products, electrical equipment, wood rebound after the 13.3% decline recorded in 2009.products, furniture, and wearing apparel, have Prices of oil, gas, and other commodities ingrown at paces similar or exceeding those of the international markets are the main culprits, but aboom years; however, due to a steep decline in strong pickup in demand for manufacturing2009, they are still below their peak levels. For production also contributed to price increases. Thisexample, in the first three quarters of last year, is reflected in the differences in product prices formanufacturing of transport vehicles, trailers, and Lithuanian and foreign consumers. The averagesemitrailers increased by more than 80% compared annual increase in prices of industrial productionwith the same period of 2009. However, the jump is sold in the Lithuanian market edged up by 4.1%,mainly due to a very small comparative base. whereas prices of production sold in foreign markets increased by 16.9%.One of the few sectors that continued to decline lastyear was manufacturing of food products. Except Producer prices of food products sold in Lithuaniafor manufacturing of refined petroleum products, declined by 0.3% (after declining by 4.6% in 2009),which makes up one-third of total manufacturing whereas prices of food products sold in foreign(but depends on a single company), the food sector markets rose by 12.3%. Probably, this partlyis still the largest and makes up one-sixth of total reflects the different structure of products sold inmanufacturing. The growth of the latter sector was Lithuania and abroad (higher added value), but alsomuted due to weak domestic demand, on which it suggest that some of the price increases for localheavily relies. However, producers of food and consumers were postponed due to very weakbeverages are slowly discovering new export domestic demand. The same tendency is noticed inmarkets and becoming less dependent on local other sectors; for example, last year prices ofconsumers. Sometime in the not-too-distant future, rubber and plastic products in the local marketdomestic demand for consumer staples will pick up declined by 3.4% but went up by 5.7% in foreignand provide a strong boost for the manufacturing markets.sector. A different tendency is noticed in producer prices of pharmaceuticals. Although these prices were increasing in both 2009 and 2010 (8.4% and 11.2%, 2 (3)
  3. 3. The Lithuanian Economy Economic Research Department, Swedbank Nr 01 • 31 January 2011respectively), the burden was heavier for local than electrical and equipment, and motor vehicles,foreign consumers. Producer prices of producer prices were still declining in 2010. Thispharmaceutical products and preparations in the reflects a positive consequence of increasedLithuanian market went up by 14.4% last year, productivity through lower labour costs.compared with only a 5.5% price increase ofproducts sold in foreign markets. Rising Manufacturing and consumer prices, Jan 2005 – Dec 2010pharmaceutical prices during the recession (Annual change, %)confirms the theory that this sector is immune to (or 20even enjoys) downturns. However the reasons 15behind the differences in producer prices ofpharmaceuticals sold in Lithuania and abroad may 10be a little more subtle. Since 2010, it has been 5forbidden for doctors to indicate a specific brand ofmedicine on prescriptions – only the active 0chemical within it can be stated. This may have -5caused some consumers of pharmaceuticals toswitch to cheaper generics (which are more often -10produced in Lithuania) and have created afavourable environment for producers to increase -15 2005 2006 2007 2008 2009 2010their prices. Manuf acturing prices Consumer prices, lagged 2 quartersPrices of industrial production, Jan 2005 – Dec 2010 Source:Statistics Lithuania and Swedbank calculations(Annual change, %) 40 The strong pickup in producer prices poses two 30 main threats. First, relatively more expensive production is less competitive abroad and will cause 20 a slowdown in exports and manufacturing itself. 10 Even if competitiveness has not suffered so far, sectors operating at close to full capacity and 0 experiencing some shortages of specific skilled labour may start raising wages, which will place -10 more upward pressure on prices and dent -20 competitiveness. Second, higher producer prices in the Lithuanian market are already starting to be -30 reflected in rising consumer prices. This does not 2005 2006 2007 2008 2009 2010 Total market bode well for lower-income households, which have Lithuanian market not yet recovered from the hit on their disposable Source: Statistics Lithuania Non Lithuanian market income.Average annual inflation of manufacturing prices in2010 was 11.3%, after a 15.8% decline in 2009. Not Nerijus Mačiulissurprisingly, an above-average price increase wasrecorded in manufacturing of refined petroleumproducts, chemicals and chemical products, andpharmaceuticals. However, in many sectors, suchas the manufacture of wearing apparel, machinery,SwedbankEconomic Research Department Swedbank’s monthly newsletter The Lithuanian Economy is published as a service to ourSE-105 34 Stockholm customers. We believe that we have used reliable sources and methods in the preparationPhone +46-8-5859 1028 of the analyses reported in this publication. However, we cannot guarantee the accuracy completeness of the report and cannot be held responsible for any error or omission in underlying material or its use. Readers are encouraged to base any (investment) decisions on other material as well. Neither Swedbank nor its employees may be held responsible forLegally responsible publisher losses or damages, direct or indirect, owing to any errors or omissions in Swedbank’sCecilia Hermansson, +46-8-5859 7720. monthly newsletter The Lithuanian Economy.Nerijus Mačiulis, +370 5 2582237.Lina Vrubliauskienė, +370 5 268 4275. 3 (3)