Economy of Lithuania

Forecasts of key indicators for 2012
GDP growth: 2,3%
Unemployment: 14,2%
Inflation: 2,1%

Lithuania is the largest of the Baltic States in terms of territory, number of inhabitants and size of economy. It was one of the fastest growing economies in Europe before the global crisis of 2008, but in 2011 it experienced one of the highest GDP growth in European Union.

Lithuania has suffered seriously from the crisis, as a result the decline of GDP reached almost 15% in 2009, however in 2010 the national economy has experienced the growth again, but in 2011 reached 5,9% growth was one of the highest in EU. A stable growth is forecasted during subsequent years.

However, the experienced economic difficulties have made some corrections in the national economy – "cheap credits" and sector of services have run short, exporting manufacturers experience greater significance and upturn, because the level of unemployment is still rather high and average salary – comparatively low, thus allowing the local companies to be in competition with export markets. Especially export was the main driving force of economic growth. Domestic consumption has not yet experienced an upturn, there’s to blame state budget spending cuts as well as bankruptcy of one of the largest state banks Snoras at the end of 2011.

To great extent recovery of the economy of Lithuania is related also to the austerity measures taken by the government – the second largest budget consolidation among developing countries was exactly in Lithuania. Only Latvia was more stringent in relation to this matter.

Unlike neighbouring country Latvia, Lithuania has managed to implement austerity measures not using the financing of the institutional grantors.

Driving forces of economy are national high technology companies, as well as large enterprises. The largest company in the Baltic States is oil processing and trade enterprise ORLEN Lietuva whose owner is a Polish concern ORLEN and its turnover was EUR 4,36 billion in 2010.

Similarly to other European countries, there are concerns about Lithuania’s economic future as well. However, they are mainly related to the export market stagnation. However, for now also domestic consumption increase is not expected, because the unemployment rate remains high, but the average salary – quite low.

Priorities and branches
* Industry forms approximately one fifth of the national economy of Lithuania; more than one fourth of all foreign direct investments which roll in Lithuania flows into manufacturing sectors.
* The country has set an ambitious objective to become the centre of technologies and innovations in the Baltics and Northern Europe.
* Lithuania is the world leader in manufacture of high-power microseconds lasers, as well as in production of especially fast parametric light generators. Therefore this country has already become one of the centres of laser technologies.
* Transit is a significant sector. At the beginning of 2012 the Port of Klaipeda was the largest port in Baltic States.
* Lithuanian Development Agency named the sectors of transport and logistics, power industry, provision of business outsourcing, IT, PET, laser and biotechnologies, as well as metal working, food production and wood-processing as attractive sectors for investors.

Risk Factors
* As Lithuania does not use institutional grantor for covering of the budget deficit but the means generated in the financial markets, there is a risk of re-crediting and further budget cuts which could impede development, at the same time such concerns are considered as unlikely.
* Lithuania in co-operation with other Baltic States is going to implement nuclear power plant (PP) project in order to ensure independence of power industry, which has become as urgently necessary after closing of outdated nuclear power plant in Ignalina.

Useful links
Ministry of Economy – www.ukmin.lt
Lithuanian Confederation of Industrialists – www.lpk.lt
Employers’ Confederation of Lithuania – www.ldkonfederacija.lt
Association of Lithuanian Chambers of Commerce, Industry and Crafts – www.chambers.lt
Lithuanian Development Agency – www.businesslithuania.com
Bank of Lithuania – www.lb.lt
Department of statistics – www.stat.gov.lt

Photo: Stock.XCHNG