Country Report Lithuania December 2008

Outlook for 2009-10

• Following the parliamentary election in October, the conservative opposition Homeland Union-Lithuanian Christian Democrats (TS-LKD) will head the new government.
• The TS-LKD aims to cut government expenditure and boost revenue in order to narrow the budget deficit, but its ability to adhere to fiscal prudence is doubtful, and budget targets will continue to be overshot.
• Tight lending conditions and declining consumer confidence will lead to a slump in private consumption and investment in 2009. We have reduced our real GDP growth forecast to 0.2% in 2009 and 0.8% in 2010.
• A moderation in domestic demand, together with falling commodity and oil prices, will bring down annual average inflation to less than 7% in 2009. We expect a further deceleration, to around 5%, in 2010.
• Sluggish import demand will lead to a narrowing of the current-account deficit as a share of GDP in 2009. A recovery in exports in 2010 will bring the deficit down further, to around 5.5% of GDP.

Monthly review

• The TS-LKD has formed a coalition with three other parties, the National Resurrection Party (TPP), the Liberal Movement (LS) and the Liberal and Centre Union (LCS).
• Speculation has continued over the candidates for the presidential election due in mid-2009. The TS-LKD may attempt to persuade Dalia Grybauskaite, Lithuania's European commissioner, to stand as its candidate.
• The new government's first major task will be to pass the 2009 budget law by December 19th. The outgoing government's draft has attracted criticism for its high levels of expenditure.
• Both the Ministry of Finance and the Bank of Lithuania (BoL, the central bank) have reduced their real GDP growth forecasts for 2009 drastically.
• Real GDP slowed to 3.1% in the third quarter of 2008, compared with 5.2% in the second quarter and 7% in the first quarter. Growth in both manufacturing output and private consumption is reported to have slowed.
• Inflation has slowed slightly since its peak in June, falling to 10.5% year on year in October. Food price increases have eased since mid-year, but high utilities prices are preventing a faster slowdown in overall inflation.
• Exports have continued to perform strongly, rising by one-third year on year in the first three quarters of 2008.

Source: Country Report

This report covers the following industry codes:
SIC Code: 10;2834;80;47;70;60;48
NAICS Code: 212;3254;62;48;72;52;517