- The Lithuanian economy experienced strong growth in the first quarter of 2011, with GDP increasing 6.9% year-over-year. This surpassed all expectations and was the highest growth since 2007. - Exports and manufacturing continued to grow rapidly in the first quarter, increasing 51% and 21.7% respectively over the same period in 2010. Strong export growth has been the main driver of manufacturing growth. - While retail trade increased 20% overall, most of this growth came from a 83.1% increase in motor vehicle sales. Excluding motor vehicles, retail trade rose only 4.9% indicating consumer spending growth remains uneven.

1. The Lithuanian Economy
Monthly newsletter from Swedbank’s Economic Research Department
by Nerijus Mačiulis No. 03 • 2011 04 29
Economic growth accelerates beyond expectations
• Lithuania enters a new economic cycle forcefully – annual GDP growth in the first
quarter exceeded all expectations and reached 6.9%. Seasonally adjusted quarterly
growth reached 3.5% - the highest pace since the second quarter of 2007.
• Retail trade, manufacturing, and exports continued their strong growth into the first
quarter of 2011. In the first two months of 2011, exports increased by 51% over the
same period a year ago. First quarter retail trade grew by 20%; however, most of
the growth was due to exceptionally strong sales of motor vehicles.
• First quarter state budget tax revenues increased by 17.6% over the same period a
year ago, exceeding the plan by 0.4%. Commendable new Convergence
Programme was confirmed by the government, by which it was agreed that the
general government deficit would not exceed 5.3% this year or 2.8% in 2012.
Economic growth unshaken by subsequent nuclear crisis in Japan. In March, the
international developments Lithuanian economic confidence indicator moved
into a positive area after being negative for almost
Despite the many upheavals and natural disasters three years.
shaking the world, the Lithuanian economy
continued its strong growth in the first quarter of This rapid growth can partially be explained by the
2011 – annual growth increased to 6.9% from 4.8% low base effect – in the first quarter of 2010, the
in the previous quarter. Lithuanian economy was very close to the bottom of
the past recession. However, a seasonally adjusted
Economic growth, % yoy quarterly growth of 3.5% is spectacular none the
less. The last time such rapid growth was recorded
15
was in the second quarter of 2007. It is not likely
10.311.1
10 8.5 9.2 that the economy will grow at the same pace in the
7.3
5.7
6.9 remaining quarters of 2011: we forecast that the
4.8
5 quarterly growth pace will decelerate somewhat.
1.9 1.0 1.2
0 We estimate that GDP will increase by 4.2% this
-2.3 -2.0 year and by 4.7% in 2012; however, recent
-5
developments suggest that there are upside risks to
-10 our forecasts.
-15
-14.0 -14.5 -14.5
Retail trade growth is solid, but not
-20
-15.9 universal
2007 2008 2009 2010 2011
In the first quarter of 2011, retail trade increased by
Source: Statistics Lithuania, Swedbank
20% compared with the same period a year ago.
However, most of the growth was due to strong
Lithuanian consumers and companies were able to sales in motor vehicles, which increased by 83.1%.
shake off the negative effects of unrest in North In the first quarter, retail trade except motor
Africa and the Middle East, as well as uncertainty vehicles was only 4.9 higher than a year ago.
and fears associated with the earthquake and
Economic Research Department. Swedbank AB. SE-105 34 Stockholm. Phone +46-8-5859 1000
E-mail: ek.sekr@swedbank.com www.swedbank.com
Legally responsible publisher: Cecilia Hermansson, +46-8-5859 7720
Nerijus Mačiulis + 370 5 258 2237. Lina Vrubliauskienė +370 5 258 2275.

2. The Lithuanian Economy
Economic Research Department, Swedbank
Nr 03 • 2011 04 29
Retail trade, % yoy Inflation peaked in March at 3.8% but still remains
30% among the lowest in the region. So far, only three
product groups in the consumer basket have
20% contributed to inflation – food, transport, and
10% housing. These products make up more than 50%
of the average Lithuanian’s consumer basket, and
0% they are even more relevant to poorer households.
-10%
-20%
Manufacturing growth is strong and the
main driver is exports
-30%
-40% In the first quarter of 2011, manufacturing grew by a
2007 2008 2009 2010 2011 solid 21.7% over the same period a year ago.
Manufacturing has been growing for more than a
Retail trade Retail trade, except of motor v ehicles
year now and the main driver, so far, was foreign
Source: Statistics Lithuania
demand. Domestic demand is picking up slowly and
will contribute to the strong performance of
Despite dearer oil and fuel prices, retail sales of manufacturers this year and the next.
automotive fuel were also increasing more rapidly –
annual growth in the first quarter was 8.3%. Even Contribution to manufacturing growth, pp
with the government’s strong determination to 25%
reduce smuggling, this growth was a little 20%
unexpected. 15%
10%
Retail sales of audio and video equipment, 5%
0%
electrical household appliances, furniture, and
-5%
lighting equipment also increased at a more rapid -10%
pace and were 11.3% higher than a year ago. -15%
-20%
However, in the first quarter, retail sales of food, -25%
alcoholic beverages, and tobacco were 0.2% lower 2008 2009 2010 2011 2m
than a year ago. This indicates that rising food
Ref ined petroleum prod. Food and bev erages
prices were chipping away at purchasing power, Furniture Metals, motor v ehicles
Textiles, wearing apparel Wood and paper
and this was especially felt by less wealthy Chemical products Other
households. All this confirms our earlier forecast Manuf acturing, y oy
Source: Statistics Lithuania, Swedbank
that this year households will consume more
leisure, luxury and capital goods, but not
necessities. Over the first two months of this year production of
refined petroleum products contributed the most to
Contribution to annual CPI growth, pp overall growth (9.6 percentage points (pp)), but
14
mainly because it’s by far the biggest manufacturing
activity in Lithuania. One oil refinery makes up a
12
little more than one-fourth of all Lithuanian
10 manufacturing.
8
6
Production of food and beverages (3.1 pp), furniture
(2.6 pp), and metals and motor vehicles (2.3 pp)
4
also contributed significantly to the growth of
2 manufacturing.
0
-2 In the second half of 2011, manufacturing levels are
expected to exceed the all-time highs achieved
2007 2008 2009 2010 2011
before the economic recession began in early 2008.
Food Transports Housing The further growth and success of this sector will
Others CPI growth
depend on investments, which were at very low
Source: Statistics Lithuania, Swedbank levels in 2009 and 2010.
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3. The Lithuanian Economy
Economic Research Department, Swedbank
Nr 03 • 2011 04 29
Public finances are under control, but risk
remains The New Convergence Programme confirmed by
the government highlights its intention to reduce the
Faster economic growth and higher prices helped general government deficit to 5.3% this year and to
the government to achieve its very optimistic plans. 2.8% in 2012. Furthermore, the programme states
State budget tax collection in the first quarter of that government debt will decline from 38.1% in
2011 exceeded plans and was 17.6% higher than a 2011 to 35.4% in 2012. These intentions, although
year ago. Overall first quarter state budget income commendable, will not be easy to achieve.
was 15.7% higher than in the same period a year
ago. Considering the upcoming parliamentary elections,
the goal of reducing the general government
State budget revenues, m LTL budget deficit to 2.8% next year seems a bit
ambitious, as many plans are already being
4500
1Q 2011 actual discussed to increase spending next year.
4000 1Q 2011 plan
3500 1Q 2010 actual We maintain our forecast that the main hindrance to
3000 meeting the Maastricht criteria and entering the
2500 Economic Monetary Union in 2014 will be inflation.
2000
Although we expect it to be lower next year,
inflation may still exceed the Maastricht criterion,
1500
which takes into account the rates of the three EU
1000 members with the lowest inflation.
500
0 The government has few instruments to control
State VAT PIT Excise Prof it tax inflation, but housing costs (usually dependent on
budget (EU duties state-owned monopolies) can be influenced, at
support least to some extent. A special responsibility falls
excluded) Source: MoF on the Competition Council (which has a new head)
and other institutions responsible for fair pricing and
Revenues from the value-added tax (VAT) consumer protection. The blunder made in 2006,
increased by almost 20% and exceeded plans by when the inflation criterion was missed by 0.1
5.6%. Although 6.7% higher than a year ago, percentage point, should not be repeated.
income from excise duties was 5.9% behind the
plan. The ambitious plans to significantly increase
income from excise duties were based on the
intention to quickly and significantly reduce
smuggling. Various measures are being
implemented in this area, but it will take time before Nerijus Mačiulis
the results are reflected in state budget revenues.
Swedbank
Economic Research Department Swedbank’s monthly newsletter The Lithuanian Economy is published as a service to our
SE-105 34 Stockholm customers. We believe that we have used reliable sources and methods in the preparation
Phone +46-8-5859 1028 of the analyses reported in this publication. However, we cannot guarantee the accuracy or
ek.sekr@swedbank.com completeness of the report and cannot be held responsible for any error or omission in the
www.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 for
Legally responsible publisher
losses or damages, direct or indirect, owing to any errors or omissions in Swedbank’s
Cecilia Hermansson, +46-8-5859 7720.
monthly newsletter The Lithuanian Economy.
Nerijus Mačiulis, +370 5 2582237.
Lina Vrubliauskienė, +370 5 268 4275.
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