Roundup: Domestic demand main driver for Lithuanian economic growth

Lithuania's GDP (gross domestic product) expanded by 1.8 percent during the third quarter on an annual basis, as the country's economy was propelled mostly by domestic demand, Lithuania's statistics department said on Friday.

From the previous quarter, GDP advanced by 0.5 percent, preliminary statistics data show.

"The domestic market remains the lifebelt which keeps GDP momentum above water," Gitanas Nauseda, economist and adviser to the president of SEB bank here, said in the bank's commentary.

According to him, domestic demand has been supported by growing average wages and subsiding unemployment, as well as by general optimism which persisted despite geopolitical issues and resident's wariness of the introduction of the euro at the beginning of the year.

However, SEB bank suggested economic growth could be more rapid given the current macroeconomic environment, and pointed to the country's exporting sectors which were the hardest hit due to Russia's embargoes.

"Our food industry has already changed its focus to alternative exports markets and stabilized its production capacity. Certainly, it is not to be said about the companies' financial results as their products are being sold in less profitable markets," Nauseda mentioned.

In the second half of the year, the economist said he expected bigger agricultural sector input in the economy, given the high grain yield this year and other data from crop production.

SEB did not change Lithuania's GDP forecast for the whole of 2015 and expected the economy to expand by 1.8 percent this year and accelerate to 2.8 and 3.2 percent in 2016 and 2017 respectively.

The Lithuanian economy suffered the biggest blow from deteriorating demand in Russia's and other CIS markets this year, as well as from the Russian embargo to imports of food production from the EU, Rokas Grakauskas, Baltic analyst at Danske Bank, said in the bank's notice.

Based on the bank's calculations, exports of production of Lithuanian origin to Russia's market decreased by 55 percent this year, while re-exports shrunk by 40 percent.

However, the 1.8-percent growth rate for the third quarter shows that Lithuania's economy has started to recover.

"It is the best result this year and the signal that the economy has started to recover after the period of the slowest growth since the 2008-2009 financial crisis," Grajauskas said.

In his words, by the end of this year, the effect of deteriorating demand in Russia for Lithuania's economy would diminish, therefore, the country's economy should expand by 2.1 percent during the fourth quarter.

In this case, Lithuania's GDP would grow by 1.7 percent this year, Danske Bank expected.

According to the bank's forecasts, the country's economy would expand by 2.8 percent in 2016 and 3.2 percent in 2017.

In September, Lithuania's ministry of finance cut the country's GDP projection for 2015 from 2.5 percent to 1.9 percent, mostly due to the unfavorable external environment. Endit