The Lithuanian EconomyMonthly newsletter from Swedbank’s Economic Research Departmentby Nerijus Mačiulis, Vaiva Šečkutė No. 1 • 4 January 2012 Lithuanian economy is resilient so far Industrial production increased by 0.9% in November over the corresponding period in 2010, while manufacturing, except for refined petroleum products, grew by 4.3%. The slower growth was the result of a much higher comparative base and weaker demand in foreign markets; nevertheless, the sector remains competitive. In November growth in retail trade, except for motor vehicles, reached 14.1% and was the fastest since the beginning of recovery. However, consumption growth will subside eventually due to sluggish increase in purchasing power and the higher household saving rate, which probably already decreased in 2011. Growth in the fourth quarter is likely to have been as strong as in the first three quarters of 2011. This is a favourable development for public finances as budget collection has been lagging behind the plan this year. However, foreign as well as domestic demand growth should slow going forward. This slowdown – and cheaper commodities – will be the main reasons behind lower inflation in 2012. but also by the disappearing base effectManufacturing growth slowed to the level of (manufacturing has been growing in double digitsthe beginning of 2010 since the second half of 2010).The resumption of manufacturing growth inNovember showed that this export-dependent Expectations and annual change in industrial production, %sector has managed to stay somewhat resilient 35despite adverse developments in the main export 30markets. Nevertheless, the manufacturing sector’s 25 20performance has fallen off from the strong growth 15that began in the second half of 2010. However, the 10decrease in manufacturing in October, except for 5 0refined petroleum products, appears to have been -5short-lived as it was probably caused by an -10adjustment in inventories rather than a decrease in -15 -20demand. -25 -30In November, industrial production increased by 2010 20110.9% on a yearly basis and by 1.1% compared with Industrial conf idencethe previous month (seasonally adjusted). Production expectations Industry , y oyManufacturing, meanwhile, except for refined Assesment of stocks Manuf acturing (excl.ref ined prod.), y oypetroleum products, grew by 4.3% annually and by Source: Statistics Lithuania4.7% on a monthly (seasonally adjusted) basis. In December, industrial confidence picked up to -16Growth in manufacturing, except for refined from -19 in November. The assessment of stockspetroleum products, was the slowest since April decreased as the number of companies that2010; however, this was caused not only by the assume their stocks to be too high fell fromincreased cautiousness in the main export markets, November to December. This, however, might Economic Research Department. Swedbank AB. SE-105 34 Stockholm. Phone +46-8-5859 1000 E-mail: email@example.com www.swedbank.com Legally responsible publisher: Cecilia Hermansson, +46-8-5859 7720. Nerijus Mačiulis +370 5 2582237 Lina Vrubliauskienė +370 5 258 2275. Vaiva Šečkutė +370 5 258 2156.
The Lithuanian Economy Economic Research Department, Swedbank No. 1 • 2012 01 04have been influenced by the holiday season and Most of this growth was due to the increasedthe temporary increase in demand. consumption of non-necessities; however, the growth in retail sales of food, beverages, andThe Lithuanian manufacturing sector is highly tobacco was the highest since 2008 and 5.3%dependent of the EU market – almost 80% of higher than a year ago. This reflects not only anLithuanian origin goods are exported there. More increase in consumption, but also the positivethan half of all exports to the EU are realised in the consequence of the introduction of cash registers ineuro zone. Therefore, the weak economic outlook in indoor food markets.Europe will dampen growth in the Lithuanianmanufacturing sector due to a possible further The yearly growth of retail sales of automotive fuelsadjustment in the inventory level and weaker also increased, from 7.3% in October to 14.6% indemand. Nevertheless, Lithuanian manufactures November. Retail trade in electronic householdshould be able to weather a possible euro zone appliances and information and communicationrecession, as all major export markets are still technologies was also exceptionally strong, aexpected to grow in 2012. probable consequence of shopping for gifts.In the future, companies should be able to maintain The increase in consumption in 2011 must havetheir competitiveness as well. A recent survey by been at the expense of the household saving rate,Statistics Lithuania indicates that the tendency to which was at 7.9% in 2010, as real wages fell ininvest (the difference between the percentage of 2011. The pace of growth in deposits decreased arespondents who plan to invest more and those bit as well. In the first 11 months of 2011, depositswho plan to invest less) in industry in 2012 remains from households increased by 5.1% over the sameat the same level as in 2011. These plans, period in 2010. Annual growth of deposits duringhowever, can change if situation in euro zone turns the same period in 2010 was 6.1%.from bad to worse. Deposits from households, billion LTLRetail trade grows at record pace despiterapidly decreasing expectations 31 30%The bankruptcy of the bank Snoras and the ongoing 29 25%debt crisis in the euro zone had a significant impacton consumer confidence but did not deter 27 20%consumer spending in November. Although some 25 15%households faced severe liquidity constraints whendeposits at Snoras were frozen for a month in mid- 23 10%November, this had no negative impact on retailtrade as a whole. 21 5% 19 0%Annual change in retail trade, %, and confidence indicators 17 -5% 30 2007 2008 2009 2010 2011 20 Deposits growth, y oy (rs) 10 Source: Bank of Lithuania 0 Household consumption and retail trade seem to -10 -20 have continued their strong growth in December - -30 some of the households may have used the -40 deposits recovered from Snoras to buy Christmas -50 gifts and other non-necessities. Current estimates -60 show that some LTL 1 billion (about 1% of GDP) of insured deposits were not transferred to other 2010 2011 Retail trade conf idence indicator banks’ accounts, but were retained in cash. The Consumer conf idence indicator Retail trade biggest wearing-apparel retailer (Apranga) in Retail trade except of motor v ehicles and motorcy cles Retail sale of f ood, bev erages and tobacco Lithuania has already reported that annual growth Retail sales f or automotile f uels of its sales in December reached 31.8%. Source: Statistics Lithuania, Swedbank It is likely that the growth of retail trade peaked inGrowth in retail trade, except for motor vehicles, 2011 and will moderate in 2012. High inflationalmost broke the four-year record in November – it expectations and falling unemployment encouragedincreased by 14.1% over the corresponding period consumption in 2011. This effect should continuein 2010 and by 4.2% compared with October for a while as consumer survey shows that the(seasonally adjusted). number of people thinking of the current period as appropriate to make major purchases increased in 2 (4)
The Lithuanian Economy Economic Research Department, Swedbank No. 1 • 2012 01 04December. On the other hand, the record retail Annual change in industrial and consumer prices, %trade growth coincided with a rapidly worseninghousehold financial and general economic situation 25and rising unemployment expectations. Although 20unemployment is expected to decline further this 15year, the sluggish increase in wages will notsignificantly strengthen the purchasing power of the 10employed. All in all, we expect retail trade growth to 5be above 5% in 2012. 0Signs of decreasing inflation 2008 2009 2010 2011 -5Inflation in average industrial prices increased from -109.8% in January-November 2010 to 14.3% in thefirst 11 months of 2011. Most of this increase was -15due to higher prices of energy and commodities, as Industrial price index (Lithuanian market) CPI, lagged 2 quarterswage growth was still negligible. However, annual Source: Statistics Lithuaniainflation has been falling for the past couple ofmonths and was 12.7% in November. Annual Budget collection lags behind the planindustrial price growth is still higher for products despite strong growthsold in foreign markets – in November, prices were14.5% higher than a year ago, whereas products Manufacturing production and retail trade growthsold in local market were 10.8% more expensive. indicate that the Lithuanian economy is nowhereThe diminishing difference in price growth between near a recession or stagnation, and growth in thedomestic and foreign markets indicates stronger fourth- quarter is likely to have been as strong as indomestic demand growth, as well as weaker the first three quarters of 2011.demand in export markets. Budget collection, LTL billionAnnual change in industrial prices, % 16 120 40 14 110 97.1 102.5 102.6 12 100 30 92.0 10 90 20 8 80 68.9 6 70 10 4 60 0 2 50 0 40 -10 State VAT Personal Excise Prof it tax budget (EU income tax duties -20 support excluded) -30 11 months 2011 actual 11 months 2011 plan 2008 2009 2010 2011 11 months 2010 actual Plan execution, % (rs) Lithuanian market Non Lithuanian market Source: Ministry of Finance Total market Source: Statistics LIthuania This strong growth is favourable for public financesAlthough, in November, consumer prices were because budget collection has been lagging behind4.4% higher than a year ago, inflation has eased the plan. Budget collection in 2011 lagged mostlyfrom the peaks reached in the middle of 2011. This because revenue from the profit tax was more thanwas achieved despite the higher inflation 30% lower than planned. Even though companiesexpectations – net balance of responses increased profits increased by 83% during the first threefrom 42 in August to 52 in December. Weaker quarters of 2011, compared with the correspondinggrowth in industrial prices, likely cheaper period a year ago, this will have a positive effect oncommodities, and weaker domestic demand will profit tax revenues only in 2012. The income fromcap consumer price increases this year. We the profit tax was 13.7% lower during the first 11forecast average annual inflation to decline steadily months of 2011 compared with he same period inthis year and reach 2.5% by the end of 2012. 2010. This was due to loss transfers from previous years, which caused the tax base to shrink. However, personal income tax collection in the first 11 months of 2011 increased by 59.1% over the same period in 2010. Income from this tax 3 (4)
The Lithuanian Economy Economic Research Department, Swedbank No. 1 • 2012 01 04collection and from the value-added tax (VAT) was from the exceptionally high corporate profits inhigher – by 2.6% and 2.5%, respectively – than 2011. Nevertheless, the global challenges remainplanned. acute, and it may become necessary to consolidate public finances further in the second half of 2012.In 2012, income from personal income tax isexpected to increase due to higher employment,rising wages, and the reduction in the number ofprofessions that can pay fixed income tax. VAT Nerijus Mačiulisrevenues will be supported by increasing domestic Vaiva Šečkutėconsumption, and profit tax revenues will benefitSwedbankEconomic 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 firstname.lastname@example.org completeness of the report and cannot be held responsible for any error or omission in thewww.swedbank.com 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 5 258 2275.Vaiva Šečkutė, +370 5 258 2156. 4 (4)