Lithuania’s PM does not see economic crises, but…

April 24, 2008 at 3:18 pm 1 comment

The Prime Minister Kirkilas announce in his radio interview that Lithuania is not experiencing any economic crisis.

He said that opposition politicians who are talking about an economic crisis must be experiencing “a crisis in their heads”. 

“Our economy is currently growing at a rather fast rate. We do not have final data for the first quarter yet, but we anticipate a similar growth rate to that we had last year. Inflation is a problem not only for Lithuania and the European Union, it is a global problem.” 


As the BNS wrote “There will be no economic recession in Lithuania. Our industry and our businesses operate really efficiently. There are certain challenges, but I would not call that a crisis. The opposition always sees a crisis. Most probably, there is a crisis in their heads.”

“Our nations (the Baltic states) need a soft landing in order to prevent an overheating of their economies. This is what is taking place now. We have somewhat smaller growth rates, which is normal.” 

Lets have a look what the other financial institutions think about the status of the Lithuanian economy.

The IMF warned Lithuanians that the dependence of Lithuania’s banking sector on foreign financing coupled with increasing macroeconomic imbalances render it vulnerable to regional and global disturbances.

·        Existing capital might not be sufficient to cope with extreme events and higher buffers would be advisable.

·        Given limitations of lender-of-last-resort operations under the currency board, contingency planning for emergency liquidity support under crisis conditions should be further discussed with banks, parent banks, and authorities of foreign banks.

·        The dominance of foreign-owned banks in the banking system constitutes both a source of strength and a risk. Although the foreign banks are highly rated, these ownership linkages increase regional and global contagion risks, especially against the backdrop of the recent global turmoil in financial markets.

·        The loan portfolios of Lithuanian banks are sensitive to the domestic economic cycle and euro interest rates, particularly given the significant concentration in real estate-related lending.

Recommendations from the IMF

·        IMF also Lithuania to strengthen supervision in the non-bank financial sector, given the rapid growth of assets and the increasing sophistication of financial institutions.

·        The regulatory and enforcement framework for insider trading should also be reformed.

 Lithuanian Free Market Institute

·        Lithuania is already on the ‘soft landing’ stage.  The GDP will grow by 6,6% this year

·        Lithuania’s cushion against the global recession is its low competitiveness and productivity.  We can increase the productivity applying simple solutions, at least in the short term.

·        Money for the new technologies and innovation will increase due to the rising wages

·        The wage rise will slow down, this year should be about 12%, to 1,779 LTL by the end of the year

·        The Black Economy will be on the rise again, from 17,8% to 18,5%.  The tax burden will increase from 31,9% to 40,9% in 2008.

·        Imports will decline

·        Lithuania is not too connected too strongly with the markets which experiencing the decline or stagnation.

·        Lithuanians borrowed from the banks relatively small amounts of money

·        The immigrants still transferring huge sums of money into Lithuania

·        The election campaign started already, some populist decisions accepted in Seimas and are already affecting the economy

SEB

·        Inflation should be 8,5%

·        Some signs of the ‘hard landing’, which will be more evident in the last two quarters

 Danske Bank

·        The GDP around 5%

·        Inflation about 10% since increased heating prices will hit the Lithuanians hard

·        More troubles ahead since the Baltic economies ‘engine’ the exports will decline

·        If a bank (especially a Scandinavian) would collapse the consequences for the  Lithuanian economy could be catastrophic.  But a collapse of a Scandinavian Bank is almost impossible. 

On the other hand the Standard & Poors published a table of the most volatile economies in the world which are very likely to feel the most negative effects of the world economical crises.Lithuania is in the tenth place

               1.Iceland 

               3. Rumania

               4. Latvia

               7. Hungary

               8. Bulgaria

               9. Poland

               10. Lithuania 
 

Amongst 40 mentioned Estonia is not in.  The Danske Bank analyst for the Baltic countries Mrs Klyviene is surprised because the Estonian economy in the private sector looks much more volatile that Lithuania’s.  Nevertheless, perhaps the S&P paid more attention to the more strict Estonian fiscal policy. 

Hansabankas

Lithuanian economy could soften the effects of the world economy if it would redirect its exports to Russia and the other resources rich countries.

There are some since of looming crises, the construction industry which according to some estimates generates some 25% of all Lithuanian GDP, is slowing down.  The logistics companies also feeling a crunch.  The beauty salons complaining the less ladies making their hair.

Lets wait and see, but the slowing down mood is in the air.

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Entry filed under: Baltic States, Economics, Energy, Lithuania, Northern Europe, Politics.

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1 Comment Add your own

  • 1. Al Krasnisky  |  April 28, 2008 at 3:38 am

    Thanks for an informative information about Lithuanian economy
    I Listen to Lithuanian National Radio to get information about the things that go on in Lithuania. I ow a bsiness making real estate signs in USA and thoughts of doing the same thing in Lithuania for the european market. i had a chance to visit Lithuania in 1995,1996, 2003 2006 and now its not to good idea. 1996 4 litus to a dollar now its 2.15 the cost of owning or even reting it is to costly. In 2006 a friend of mine drove all over western Lithuanian and found some land about 20 km from Palanga 18 hectors for $40,000 next day it was sold. Real estate has to be affordable.
    Finally April 25 national radio said USA has a housing problem. Let me tell that we had for the last 2 years and no end in site.
    Americans live on credit cards and with price of gas not to much will be spend in the retail sector. There is an old saying here when american gets a cold the whole world is affected.For lithuanian sake i hope its mild
    al krasnisky
    denver colorado

    Reply

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