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7/29/2019 The Lithuanian Economy - March 19, 2013
1/3
Economic Research Department. Swedbank AB. SE-105 34 Stockholm. Phone +46-8-5859 1000E-mail: [email protected] www.swedbank.com
Legally responsible publisher: Magnus Alvesson, +46-8-5859 3341.
Nerijus Maiulis, +370 5 2582237. Vaiva ekut, +370 5 258 2156, Laura Galdikien, +370 5 258 2275
The Lithuanian EconomyMonthly newsletter from Swedbanks Economic Research DepartmentbyNerijus Maiulis, Vaiva ekut and Laura Galdikien No. 2 19 March 2013
Export-supported growth last year was held back bylow expectations; prospects look better in 2013
GDP growth eased from 5.9% in 2011 to 3.6% last year. Export growthaccelerated significantly in the second half of 2012, while householdconsumption growth was stronger in the first half of the year. Lower inventorylevels and weaker investments were the reasons why economic growth wasslower in 2012 than in 2011.
Industrial output, except for refined petroleum products, grew at a similar rate
as in 2011, while investments decreased due to weak expectations. Weexpect investment will catch up this year as conditions are improving.
Growth slowed as expectations weakened
In the last quarter of 2012, growth was somewhatslower than in the previous quarter but remainedvery robust. Net export and household consumptionwere the main contributors to GDP growth. Exportgrowth accelerated in the last quarter, althoughhousehold consumption continued its gradualdecrease, from 7.9% in the first quarter to 3.2% in
the last quarter.
As expected, overall GDP growth was significantlyweaker in 2012 than in the previous year. The mainreason was not weak final demand but ratherrestrained expectations.
Contributions to GDP growth
4.1%4.4%
2.1%
5.7%6.6%5.6%
5.5%
5.0%
0.9%1.1%
-1.0%
3.9%
-15%
-10%
-5%
0%
5%
10%
15%
2010 2011 2012
H ousehold consumption Gov ernment consumptionI nv estment (excl.inv ent.) Inv entoriesNet export GDP growth
Source: Statistics Lithuania, Swedbank
Inventories and investments contributed negativelyto growth, as companies reduced their inventories
and investments. The lower level of inventories wasthe main reason why the economy grew moreslowly in 2012 than in 2011. This means thateconomic growth last year was held back mostly bythe companies weaker outlook; this can at leastpartly be explained by the parliamentary election inLithuania and the looming recession in the euroarea. On the other hand, companies were able tosustain high export growth by relying on the faster-
growing Baltic and CIS economies.
Weak expectations weighed down investments aswell. Gross fixed capital formation contracted by2.5% in 2012. Investments in fixed tangible assetsincreased by only 0.5% last year and contracted by9.5% in the fourth quarter compared with the samequarter a year ago. This was the first time since2010 that investments fell. Despite a growing needto invest in order to raise efficiency and capacity,investments in acquisition of machinery andequipment remained at relatively low levels,increasing by only 6.1% last year.
We believe that investments will accelerate thisyear as companies are operating at close to fullcapacity. Thus, further output growth requires morebusiness investment. Investment might also belifted somewhat by the 25% increase in the monthlyminimum wage, as some companies will probablyinvest in less labor-intensive technologies.Moreover, there is not only a need, but also theavailability, of financial resources for investments.Last year's profits rose by 12.6% to LTL 9.4 billionand were the highest since 2007. Rock-bottominterest rates and high bank liquidity are alsocreating good conditions for raising the financial
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The Lithuanian Economy
Monthly newsletter from Swedbanks Economic Research Department, continued
No. 2 19 March 2013
2 (3)
leverage, which is still well below the 2008 peakand also the 2005 level.
Liabilities of non-financial corporations
71.3%
96.0%
74.9%
39.9%32.9%
14.6% 13.9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008 2009 2010 2011 2012
Equity to liabilitiesLong-term f inancial liabilities to t otal liabilities
Current f inancial liabilities to total liabilities
Sources: Sstatistics Lithuania, Swedbank.
Construction sector is weak link
Despite positive growth rates in recent years, GDPis still below pre-crisis levels. In the fourth quarter,output was 5% lower than in the second quarter of2008, when the Lithuanian economy reached itspeak.
GDP dynamics by sectors, %
1% 7%1%
-47%
7%1%
-5%
-20%
-3%
8%
-7%-15%
-60%
-40%
-20%
0%
20%
40%
Agriculture
Industry
Manufacturing
Construction
Trade,
transp.
Information,
communication
Financial,insurance
Realestate
Professional,
scientificact.
Publicadministr.
Arts,entertainment
GDP
Growth from trough to Q4 2012Contraction from peak to troughCurrent position: from the peak to Q4 2012
Source:Statistics Lithuania, Swedbank
In the fourth quarter of last year, value added grewin annual terms in all sectors, except forconstruction. Thanks to booming exports, thehighest increase was recorded in the manufacturingsector. Its value added grew by 10.7% in the lastquarter and was 7% above the pre-crisis peak level.From 2011 to 2012, value added increased by 8.6%in agriculture, forestry and fishing; 7% in informationand communication; 6.3% in trade, transport, food,and the accommodations sector; 6% in
manufacturing; 4.2% in industry; and 2.6% in realestate activities. However, it decreased by 5% in
the construction sector. After eight consecutivequarters of growth, value added in the constructionsector started contracting again in the second half
of last year. Less demand from the public sectorand low confidence in the private sector likely led tothis contraction. Since this sector suffered the mostduring the downturn, its value added is still 47%below the pre-crisis level. An increasing number ofnew building permits and a likely vitalisation ofrenovation of Soviet-era buildings could reverse thistrend in 2013.
Retail trade growth lost steam
Annual retail trade growth decreased from 6.1% in2011 to 3.9% in 2012. Consumers were morecautious due to slower wage bill growth and weaker
expectations. Rising prices lowered fuelconsumption. Food consumption increased by only1.4%, which was nevertheless higher than the 0.8%growth in 2011. However, retail trade growth wasstill mostly driven by non-necessity consumption.Rising prices of such necessities as housing andfood resulted in slow consumption growth of low-wage-earning households.
Housing and fuel inflation eased at the end of lastyear and the beginning of 2013. This easing andacceleration in wages should have a positive effecton necessity consumption this year. We forecast
real wage growth to be positive.
Manufacturing supported by strong exports
Growth in Lithuanias industries accelerated in thesecond half of last year. Industrial productionincreased by 8.7% in the fourth quarter in annualterms, compared with 6.6% in the third quarter.However, this was not sufficient to increaseindustrial production by more than 3.7% in 2012,compared with 6.4% in 2011. The decline inindustry growth in 2012 can be explained by the30.6% contraction in the manufacturing of refinedpetroleum products in the second quarter of last
year - the result of maintenance works on the oilrefinery. Manufacturing of refined petroleumproducts recovered strongly in the second half ofthe year, when its annual growth reached 28.8%.
After a slowdown in the third quarter of 2012,annual growth of manufacturing, except for refinedpetroleum products, picked up again in the lastquarter, reaching 10.6% - the fastest pace of growthlast year. Foreign demand remains the main driverof manufacturing growth, as most of this sector'sproduction is exported. Last year, real exports ofgoods and services increased by 11.2% - not much
less than the 14.1% registered in 2011. Nominalexports of goods to Germany, which is one of themain markets for Lithuanian-origin exports, fell by
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The Lithuanian Economy
Monthly newsletter from Swedbanks Economic Research Department, continued
No. 2 19 March 2013
3 (3)
4.3%, and to France by 13.5% in nominal terms.Despite the contracting economy in the euro area,exports were expanding rapidly to Latvia and
Estonia, where they increased by 21.8% and34.9%, respectively. Exports to CIS countries weregrowing by 22.4%.
Industrial production and manufacturing, Q1 2008 Q4 2012
(Left scale m LTL at constant 2010 prices; Right scale yoygrowth at constant 2010 prices)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2008 2009 2010 2011 2012
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Mining a nd quarryingElectricity, water supplyRefined petroleum p roductsManufacturing (excl.refined products)Manufactu ring (excl.refined p roducts), yoy (rs)Industry, yoy (rs)
Source: Statistics Lithuania, Swedbank
Industrial production is likely to maintain its upwardtrend as the industrial confidence indicator
rebounded to -4 in February 2013 after falling inNovember 2012 to its lowest level (-21) since 2009,due to the political uncertainty caused by lastyear's parliament election. Production and exportexpectations bottomed out as well, while theassessment of stocks is at its lowest level sincemid-2011.
Industrial confidence indicator
-50
-40
-30
-20
-10
0
10
20
30
40
2008 2009 2010 2011 2012 2013
Industrial confidence Assesment of stocks
Produc tion ex pect ations Export expect ations
Source: Statistics Lithuania
One of the main growth factors in 2013 will be risinginvestments, as the depressed expectations hadprobably led companies to postpone them.Expectations are set to improve this year. However,the situation in the euro area is likely to remaintense, not least due to the uncertainty surroundingthe rescue programme in Cyprus. Unemploymentnumbers in the euro area have reached historicalhighs. Therefore, export performance will dependon companies ability to find new markets and offercompetitive goods. A further increase in efficiency,however, will be hard to achieve without
investments.
Nerijus MaiulisVaiva ekut
Laura Galdikien
Swedbank
Economic Research DepartmentSE-105 34 StockholmPhone +46-8-5859 [email protected]
Legally responsible publisherMagnus Alvesson, +46-8-5859 3341.
Nerijus Maiulis, +370 5 258 2237.Vaiva ekut, +370 5 258 2156.Laura Galdikien, +370 5 258 2275
Swedbanks monthly newsletter The Lithuanian Economy is published as a service to ourcustomers. We believe that we have used reliable sources and methods in the preparationof the analyses reported in this publication. However, we cannot guarantee the accuracy orcompleteness of the report and cannot be held responsible for any error or omission in theunderlying material or its use. Readers are encouraged to base any (investment) decisionson other material as well. Neither Swedbank nor its employees may be held responsible forlosses or damages, direct or indirect, owing to any errors or omissions in Swedbanksmonthly newsletter The Lithuanian Economy.