Lithuanian economy shrank 14.3 pct last quarter, prolonging decline
27.10.2009, 11:42Lithuania’s economy contracted an annual 14.3 percent last quarter, extending the European Union’s deepest recession, after austerity measures undermined demand and business investment in the Baltic economy, Bloomberg reports.
The pace of contraction slowed from a revised 19.5 percent contraction in the second quarter, the Vilnius-based statistics office said in an e-mailed statement today, citing preliminary data. The median estimate of six economists in a Bloomberg survey was for a 19.5 percent drop. From the second quarter, output grew 6 percent after slumping 7.7 percent in the three months through June, the office said.
The former Soviet states of Estonia, Latvia and Lithuania are suffering Europe’s severest economic decline after the credit crisis choked lending and brought to a halt the period of prosperity that had followed the countries’ 2004 EU accession. The Baltic region is now enduring the “hard landing” that economists, rating agencies and international institutions had warned of since at least 2007.
The increase in quarterly output ended a technical recession that had lasted five quarters, according to the statistics office. Latvia and Estonia have yet to report third- quarter GDP data.
Finance Minister Ingrida Simonyte said on Oct. 16 that the country may start an export-led recovery in the second half of next year. Even so, the finance ministry estimates output will shrink a further 4.3 percent in 2010.
“Somewhat smaller drops were registered in the industrial sector, which will help keep the GDP figure out from the 20 percent zone,” Jekaterina Rojaka, a Vilnius-based economist with DnB Nord Bankas, said before the data was released today. “Without the industries’ impact, GDP would have passed the 20 percent line substantially.”
Industrial output, which accounts for about 20 percent of the economy, shrank an annual 14.6 percent in third quarter, improving from a 20.4 percent drop in the previous quarter. Industry output has faltered in Lithuania, which pegs the litas to the euro, as exports sag more than in other parts of eastern Europe. That’s forced employers, struggling to adjust to tighter credit conditions, to push through wage cuts to stay competitive. edit.
Stockholm-based Swedbank AB and SEB AB, the two biggest lenders in the region, both reported soaring credit losses in the third quarter stemming from the region’s economic crisis.
Government officials in all three countries have said they won’t devalue their currencies and instead use wages cuts and deflation to bolster competitiveness, as they try to keep budgets in line with EU rules.
The government, which is paring spending and raising taxes after the recession eroded state coffers, has cut the budget by about 8 percent of GDP this year. Prime Minister Andrius Kubilius said on Oct. 16 that his Cabinet plans a further fiscal consolidation of 5 percent of GDP in next year’s budget.
Lithuania has also resisted following neighboring Latvia in requesting a loan from international lenders such as the International Monetary Fund. Latvia turned to the European Commission and the IMF for a 7.5 billion-euro loan last year after it took over its second-biggest bank.