Country Report Lithuania March 2009

Outlook for 2009-10

• The new governing coalition, led by the centre-right Homeland Union-Lithuanian Christian Democrats (TS-LKD), is likely to face fractures over the forecast period, despite having a large majority in parliament.
• Public discontent with the government's austerity programme will intensify as the economic downturn gathers pace.
• The government aims to cut spending and boost revenue in order to narrow the budget deficit, but revenue collection will suffer from the downturn in economic activity, and budget targets will continue to be overshot slightly.
• Tight lending conditions and declining consumer confidence will lead to a deep slump in private consumption and investment in 2009. We forecast that real GDP will fall by 8% in 2009 and by a further 2.5% in 2010.
• A fall in domestic demand, together with lower commodity and oil prices, is forecast to bring down average annual inflation to 4.2% in 2009. We expect a slight increase, to 4.6%, in 2010 as commodity prices and power prices rise.
• Falling import demand will lead to a marked 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 less than 6% of GDP.

Monthly review

• The government has continued to face public opposition to its tight fiscal policy. It has assuaged the most immediate concerns of the business community, but this has involved some policy backtracking.
• Confusion over the presidential candidate to be backed by the ruling TS-LKD has deepened. The prime minister's favoured choice, Dalia Grybauskaite, could be faced with rivals backed by other factions in the TS-LKD.
• The 2008 budget deficit exceeded its target, coming in at 2.5% of GDP. Budget performance also continued to be poor in January 2009, with revenue falling short of the target by 5.6%.
• The government announced an economic stimulus package that relies on EU funding and borrowing from commercial banks. The package will reach US$1.5bn-1.9bn. It is targeted at supporting business and safeguarding jobs.
• Real GDP contracted by 1.5% year on year in the final quarter of 2008, bringing full-year growth to 3.2%. Construction was one of the few sectors to record an expansion in output in the final quarter.
• Inflation accelerated to 9.6% year on year in January 2009, owing to a rise in excise duties and the adoption of a higher rate of value-added tax (VAT).

Source: Country Report

This report covers the following industry codes:
SIC Code: 82;47;49;1;60;10;15
NAICS Code: 61;48;22;11;52;212;23