The Lithuanian EconomyMonthly newsletter from Swedbank’s Economic Research Departmentby Nerijus Mačiulis, Vaiva Šečkutė No. 8 • 15 November 2011 Strong economic growth expected to decelerate Lithuania’s annual GDP growth accelerated further and reached 6.6% in the third quarter of this year. However, growth will moderate in the last quarter and in 2012 as the global economy slows and growth expectations worsen. In September, double-digit growth in retail trade (except for motor vehicles) continued. However, annual industrial production growth decreased during 2011 from 14.6% in the first quarter to 6.9% in the third. Growth expectations have been worsening for a few months as the global turbulence created by the ongoing euro zone sovereign debt crisis is here to stay for some time. Decreased foreign demand will have a negative impact on the export sector, while a loss in business and household confidence will lower the potential of a further domestic demand increase. quarter of 2008, when the Lithuanian economyRapidly increasing GDP still below pre- reached its peak.crisis levelDespite unfavourable global developments, Retail trade growth continues despite lowerLithuania has until now succeeded in sustaining consumer confidenceexceptionally strong economic growth. Even though Household consumption has continued fuellingseasonally adjusted quarterly growth this year economic growth. Strong retail trade growthdecelerated from 2.2% in the first quarter to 1.3% in continued in September despite worseningthe third quarter, annual growth continued to expectations. In September, annual growth of retailincrease over the same period from 5.9% to 6.6%. trade, except for motor vehicles, reached 10.6% - the fastest pace this year.Economic growth, yoy, % The annual growth of food, beverages, and tobacco 30 increased from 1.9% in August to 4.2% in 20 7.3 September - a pace of growth not reached in more 4.8 5.7 0.9 5.9 6.5 6.6 than three years. It is likely that this strong increase 10 1.9 0.8 in annual growth was at least partially influenced by 0 introduction of cash registers in closed markets, -10 which did not boost actual consumption, but -2.3 improved official statistics. The annual growth of -0.9 -20 total retail trade already reached a record high in -30 -14.4 June, when it increased by 25.6%. As the holiday -13.8 -15.8 -15.3 season was over, growth of retail trade of -40 automotive fuels slowed from 15.6% in August to 2008 2009 2010 2011 12.7% in September. Household consumption Gov ernment consumption Inv estment Inv entories Net export GDP growth It is not likely that such a pace of growth in retail Source: Statistics Lithuania, Swedbank trade will continue, as household sentiment has been adjusted downwards for the last few months.Nevertheless, GDP (chain-linked volume, During the first nine months of this year, retail trade,seasonally and working-days adjusted) has not yet except for motor vehicles, was on average 2.9%reached its pre-crisis level. At the third quarter, lower than the 2005 average. Retail trade ofoutput was still 8.3% lower than in the second 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. 8 • 2011 11 15automotive fuels was 4.1% higher on average, (-38) confidence level was recorded for the hardest-whereas retail sales of food, beverages, and hit sector, construction. Its confidence has beentobacco were 12.9% lower on average, indicating decreasing rapidly since July, after a strongthat consumption of necessities has not picked up recovery since the beginning of this year. Thesignificantly this year. somewhat resilient confidence level for services (24) remains the highest, probably due to its moreRetail trade confidence in October slipped back to a indirect relationship to foreign markets and lessnegative figure after decreasing for four months. It elastic demand.fell from 13 in June, when it had reached the pre-crisis level, to -1 in October. Retail companies Confidence indicatorsbecame more pessimistic about the future of theirbusiness activities, though employment (at 32 50percentage points in October) and price (11percentage points) expectations1 have been 30somewhat more stable and positive for the last 10three months. -10Consumer confidence, which had been weakening -30since August, in October fell to its lowest level sincethe beginning of this year (-23). Consumer -50confidence has been depressed lately mainly due to -70a decreasing confidence in the general economicsituation (-16). Households also think that it is a -90less favourable time to make any major purchases, 2008 2009 2010 2011 Economic sentiment Industrial (40%)and it has also become harder to save. In addition Construction (5%) Retail trade (5 %)to uncertainty regarding euro zone economic Serv ices (30%) Consumer (20%) Source: Statistics Lithuaniaprospects, the decline in consumer confidence hasalso been influenced by the start of the heating A larger number of construction sector companiesseason, which was heralded to be the most has become pessimistic about future demand andexpensive so far. prices. The share of companies that plan to lay off their employees during the next two-three monthsAnnual change in retail trade, %, and confidence indicators increased from 26% in September to 41% in October. 30 20 The industrial confidence indicator has been the 10 hardest hit as manufacturers are the most susceptible to potential shocks in foreign demand. 0 After being positive for four months earlier this year. -10 It has been decreasing rapidly since August and -20 reached -20 in October - similar to the level at the -30 beginning of 2010. Production expectations fell, -40 together with lower exports and selling price -50 expectations. -60 2008 2009 2010 2011 Industrial production growth is falling Retail trade conf idence indicator Consumer conf idence indicator Retail trade Although industrial production has been recovering Retail trade except of motor v ehicles and motorcy cles Retail sale of f ood, bev erages and tobacco rapidly during 2010 and 2011, this year it was still Retail sales of automotile f uels below its peak level. During the first three quarters Source: Statistics Lithuania, Swedbank of this year, industrial production was 4.8% lowerThe overall economic confidence indicator, which than during the corresponding three quarters ofhad become positive and reached its pre-crisis level 2008, and 5.7% lower in the third quarter this year than the industrial production peak in the secondin the middle of 2011, has been decreasing since quarter of 2008. It is not likely that industrialAugust. It declined to -7 in October. The lowest production, which contracted by 14.6% in 2009, will reach previous highs this year.1 Employment and price expectations are Manufacturing, except for refined petroleummeasured as the difference between the percentage of products, during the first three quarters of this yearpositive and the percentage of negative answers. was only 0.7% below the 2008 level, as it increased 2 (5)
The Lithuanian Economy Economic Research Department, Swedbank No. 8 • 2011 11 15by 15.4% during three quarters of this year (-27.8% to 47.1%) steadily increased.compared to the same period in 2010. Total Manufactures of furniture, chemicals,industry grew by 10.6% during the first three pharmaceuticals, rubber and plastics, wearingquarters, whereas the manufacturing sector apparel, machinery and equipment and theirenjoyed a 13.5% growth. installation, as well as of computer, electronic andThe electricity and gas supply has been decreasing optical, and electrical equipment, have increasedfor the fourth consecutive year – by -0.4% in 2008, above their 2008 levels, whereas, food, wood, and-5.7% in 2009, -4% in 2010, and -11.1% in the first metal products, textiles, and some others havethree quarters of this year). This may indicate remained below previous peaks.higher energy efficiency. Largest manufacturing sectors, yoy growth at constant 2005Industrial production this year is only 2.6% lower prices, 2008 Q1- 2011 Q3than during the corresponding three quarters of2008, if the electricity, gas, and water supply are 50%excluded. Industrial production, except for the 40%electricity, gas and water supply, is likely to reach 30%its peak in the last quarter of this year. 20% 10%The annual growth of industrial production has beendecelerating this year, from 14.6% in the first 0%quarter to 6.9% in the third. The growth of -10%manufacturing, except for petroleum products, has -20%also decreased, but remains relatively stronger. -30% -40%Industrial production and manufacturing, 1Q 2007-3Q 2011 2008 2009 2010 2011(Left scale at constant 2005 prices, m LTL; Right scale – yoy Food products Chemicals and chemical productsgrowth at constant 2005 prices) Furniture Wood Rubber and plastic products 14,000 40% Source: Statistics Lithuania, Swedbank 12,000 30% 10,000 20% The strongest growth has been recorded in the furniture (32.2% in the third quarter of this year) and 8,000 10% metal products (31.1%) sectors. 6,000 0% The fastest -growing manufacturing sectors, yoy growth at 4,000 -10% constant 2005 prices, 2008 Q1- 2011 Q3 2,000 -20% 80% 0 -30% 2007 2008 2009 2010 2011 60% Mining and quarry ing Electricity , water suply 40% Ref ined petroleum products Manuf acturing (excl.ref ined products) 20% Manuf acturing (excl.ref ined prod.), y oy (rs) Industry , y oy (rs) Source: Statistics Lithuania 0% -20%In food manufactures, which, except for refinedpetroleum products, are the biggest manufacturing -40%sector, annual growth decelerated from 11.5% in -60%the first quarter to 4.9% in the third quarter. 2008 2009 2010 2011 FurnitureThe growth of most product groups has been Metal products Computer, electronic and optical productsdecelerating this year. From the first quarter to the Paper and paper productsthird quarter, the annual growth of manufactures of Source: Statistics Lithuania, Swedbankmetal products decreased from 55.1% to 31.1%;textiles fell from 53.9% to 15.1%, electrical The debt crisis in the euro zone, subsequentequipment from 30.2% to 10.7%, motor vehicles, austerity measures, and rapidly deterioratingtrailers, and semi-trailers from 3 times to 18.1%, consumer and business confidence are likely toand pharmaceuticals from 41.0% to 10.3%. Over cause a slowdown in manufacturing, which isthis period, only the growth of machinery and largely export driven.equipment (3.1% to 3.9%) and of their installation 3 (5)
The Lithuanian Economy Economic Research Department, Swedbank No. 8 • 2011 11 15In September, exports of goods produced in foreign markets with only 10% to 25% of productionLithuania increased by 29.9%, compared with the sold in Lithuania.same month a year ago, and reached an all-time However, even domestic consumption can behigh of LTL 4.37 billion. In the nine months of this significantly weakened by adverse developments inyear, compared with the same period in 2010, these the global and euro zone economic environment -exports increased by 29.7%. as suggested by the rapid decline in consumerTotal exports also reached their all-time high of LTL confidence. Rising unemployment expectations and6.41 billion in September, as they increased by the fear of a second recession can nudge29.2% per year. Exports in goods increased by household to further increase their savings and35.1% in the first nine months of this year. reduce consumption. Household savings howeverAnnual growth of exports is expected to decelerate were around 8% in 2009 and 2010, well above longfurther in the final quarter of this year and 2012. We term average of 2.5%. Although still below EUstill expect real growth of exports to be solid 5% average of some 12%, Lithuanian householdnext year, as 2009-like collapse in international savings probably have little room to go up.trade is not likely. This, however may change if euro Some business investments, on the other hand, inzone countries are hit by non-orderly defaults and the face of higher uncertainties and potentiallymore serious shocks to demand. weaker demand are almost certain to be at leastHousehold consumption started recovering only at postponed. This is unfortunate development, asthe end of 2010 and is becoming more important for companies have been investing very little in 2009Lithuania’s economic growth; thus, the growth of and 2010 and all the gains in productivity were duesome manufacturing sectors could continue on the to lower employment. As employment will pick upback of domestic demand. Producers of beverages and wages will continue to converge with EUexport only one sixth of their production, whereas average, sustained increase in efficiency andslightly more than half of the food production is productivity can be achieved only through higherexported. Industries producing textiles, wearing investments.apparel, paper and its products, furniture and otherwood products are much more dependent on Nerijus Mačiulis Vaiva ŠečkutėSwedbankEconomic 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 (5)