Country Report Lithuania October 2009

Outlook for 2010-11

• Despite the instability of the ruling coalition, led by the centre-right Homeland Union-Lithuanian Christian Democrats (TS-LKD), the TS-LKD is likely to dominate policymaking over the forecast period.
• The coalition has only a slim majority in parliament, but it will be able to rely on informal support from deputies that have officially left the coalition.
• Public discontent with the government's austerity programme will intensify as the economic downturn continues.
• Spending pressures and poor revenue performance will keep the budget deficit large, at a forecast 6.8% of GDP in 2010. The fiscal position will only begin to improve significantly from 2011, as the economy returns to growth.
• Tight credit conditions and low consumer confidence will lead to a further fall in private consumption and investment in 2010, before a slow pick-up in 2011. We forecast a fall in real GDP of 4.5% in 2010, before growth of 2.2% in 2011.
• A fall in consumer demand and investment spending is forecast to bring down average annual inflation to 2.1% in 2010. Higher global commodity prices will prevent a faster slowdown in inflation.
• The current account is forecast to remain in surplus over the forecast period as the trade deficit remains small. The surplus will begin to erode in 2011 as imports rise following a slight pick-up in domestic demand.

Monthly review

• The speaker of parliament, Arunas Valinskas, was removed from his post after a vote of no confidence on September 15th, ostensibly because of questions over his links to criminal figures. His political future now seems in doubt.
• A split within Mr Valinskas's party could pose problems for the stability of the ruling coalition. A group of deputies who were members of the National Resurrection Party (TPP) have announced their withdrawal from the coalition.
• The central budget recorded a deficit of LTL5.5bn (US$2.1bn) in January-July, up from LTL4.7bn in the first half of the year. Nevertheless, budget revenue has stabilised and was slightly above target in January-August.
• The government has begun the dissolution of the Lithuanian Electricity Organisation (Leo) energy holding company, in order to separate electricity transmission and generation in accordance with EU directives.
• Revised figures for real GDP show a contraction of 20.2% year on year in the second quarter of 2009, following a 13.3% contraction in the first quarter.
• In the second quarter of 2009 unemployment more than tripled year on year, bringing the unemployment rate to 13.6%, from 4.5% a year earlier.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52