1. The Lithuanian Economy
Monthly newsletter from Swedbank’s Economic Research Department
by 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 effect
Manufacturing growth slowed to the level of (manufacturing has been growing in double digits
the beginning of 2010 since the second half of 2010).
The resumption of manufacturing growth in
November showed that this export-dependent Expectations and annual change in industrial production, %
sector has managed to stay somewhat resilient
35
despite adverse developments in the main export 30
markets. Nevertheless, the manufacturing sector’s 25
20
performance has fallen off from the strong growth
15
that began in the second half of 2010. However, the 10
decrease in manufacturing in October, except for 5
0
refined petroleum products, appears to have been -5
short-lived as it was probably caused by an -10
adjustment in inventories rather than a decrease in -15
-20
demand. -25
-30
In November, industrial production increased by
2010 2011
0.9% on a yearly basis and by 1.1% compared with Industrial conf idence
the previous month (seasonally adjusted). Production expectations
Industry , y oy
Manufacturing, meanwhile, except for refined Assesment of stocks
Manuf acturing (excl.ref ined prod.), y oy
petroleum products, grew by 4.3% annually and by Source: Statistics Lithuania
4.7% on a monthly (seasonally adjusted) basis. In December, industrial confidence picked up to -16
Growth in manufacturing, except for refined from -19 in November. The assessment of stocks
petroleum products, was the slowest since April decreased as the number of companies that
2010; however, this was caused not only by the assume their stocks to be too high fell from
increased 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: ek.sekr@swedbank.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.

2. The Lithuanian Economy
Economic Research Department, Swedbank
No. 1 • 2012 01 04
have been influenced by the holiday season and Most of this growth was due to the increased
the temporary increase in demand. consumption of non-necessities; however, the
growth in retail sales of food, beverages, and
The 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 an
Lithuanian origin goods are exported there. More
increase in consumption, but also the positive
than half of all exports to the EU are realised in the
consequence of the introduction of cash registers in
euro zone. Therefore, the weak economic outlook in
indoor food markets.
Europe will dampen growth in the Lithuanian
manufacturing sector due to a possible further The yearly growth of retail sales of automotive fuels
adjustment in the inventory level and weaker also increased, from 7.3% in October to 14.6% in
demand. Nevertheless, Lithuanian manufactures November. Retail trade in electronic household
should be able to weather a possible euro zone appliances and information and communication
recession, as all major export markets are still technologies was also exceptionally strong, a
expected 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 have
their 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 in
invest (the difference between the percentage of 2011. The pace of growth in deposits decreased a
respondents who plan to invest more and those bit as well. In the first 11 months of 2011, deposits
who plan to invest less) in industry in 2012 remains from households increased by 5.1% over the same
at the same level as in 2011. These plans, period in 2010. Annual growth of deposits during
however, can change if situation in euro zone turns the same period in 2010 was 6.1%.
from bad to worse.
Deposits from households, billion LTL
Retail trade grows at record pace despite
rapidly decreasing expectations 31 30%
The bankruptcy of the bank Snoras and the ongoing 29 25%
debt crisis in the euro zone had a significant impact
on consumer confidence but did not deter 27 20%
consumer spending in November. Although some
25 15%
households faced severe liquidity constraints when
deposits at Snoras were frozen for a month in mid- 23 10%
November, this had no negative impact on retail
trade 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 in
Growth in retail trade, except for motor vehicles, 2011 and will moderate in 2012. High inflation
almost broke the four-year record in November – it expectations and falling unemployment encouraged
increased by 14.1% over the corresponding period consumption in 2011. This effect should continue
in 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
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3. The Lithuanian Economy
Economic Research Department, Swedbank
No. 1 • 2012 01 04
December. On the other hand, the record retail Annual change in industrial and consumer prices, %
trade growth coincided with a rapidly worsening
household financial and general economic situation 25
and rising unemployment expectations. Although 20
unemployment is expected to decline further this
15
year, the sluggish increase in wages will not
significantly strengthen the purchasing power of the 10
employed. All in all, we expect retail trade growth to
5
be above 5% in 2012.
0
Signs of decreasing inflation 2008 2009 2010 2011
-5
Inflation in average industrial prices increased from -10
9.8% in January-November 2010 to 14.3% in the
first 11 months of 2011. Most of this increase was -15
due to higher prices of energy and commodities, as Industrial price index (Lithuanian market)
CPI, lagged 2 quarters
wage growth was still negligible. However, annual Source: Statistics Lithuania
inflation has been falling for the past couple of
months and was 12.7% in November. Annual Budget collection lags behind the plan
industrial price growth is still higher for products despite strong growth
sold in foreign markets – in November, prices were
14.5% higher than a year ago, whereas products Manufacturing production and retail trade growth
sold in local market were 10.8% more expensive. indicate that the Lithuanian economy is nowhere
The diminishing difference in price growth between near a recession or stagnation, and growth in the
domestic and foreign markets indicates stronger fourth- quarter is likely to have been as strong as in
domestic demand growth, as well as weaker the first three quarters of 2011.
demand in export markets.
Budget collection, LTL billion
Annual 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 finances
Although, in November, consumer prices were because budget collection has been lagging behind
4.4% higher than a year ago, inflation has eased the plan. Budget collection in 2011 lagged mostly
from the peaks reached in the middle of 2011. This because revenue from the profit tax was more than
was achieved despite the higher inflation 30% lower than planned. Even though companies'
expectations – net balance of responses increased profits increased by 83% during the first three
from 42 in August to 52 in December. Weaker quarters of 2011, compared with the corresponding
growth in industrial prices, likely cheaper period a year ago, this will have a positive effect on
commodities, and weaker domestic demand will profit tax revenues only in 2012. The income from
cap consumer price increases this year. We the profit tax was 13.7% lower during the first 11
forecast average annual inflation to decline steadily months of 2011 compared with he same period in
this 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
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4. The Lithuanian Economy
Economic Research Department, Swedbank
No. 1 • 2012 01 04
collection and from the value-added tax (VAT) was from the exceptionally high corporate profits in
higher – by 2.6% and 2.5%, respectively – than 2011. Nevertheless, the global challenges remain
planned. acute, and it may become necessary to consolidate
public finances further in the second half of 2012.
In 2012, income from personal income tax is
expected to increase due to higher employment,
rising wages, and the reduction in the number of
professions that can pay fixed income tax. VAT Nerijus Mačiulis
revenues will be supported by increasing domestic Vaiva Šečkutė
consumption, and profit tax revenues will benefit
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 5 258 2275.
Vaiva Šečkutė, +370 5 258 2156.
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