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1. The Lithuanian Economy
Monthly newsletter from Swedbank’s Economic Research Department
by Ieva Vyšniauskaitė No. 01 • 2010 05 18
Economic Research Department. Swedbank AB. SE-105 34 Stockholm. Phone +46-8-5859 1000
E-mail: ek.sekr@swedbank.com www.swedbank.com
Legally responsible publisher: Cecilia Hermansson, 08-5859 1588.
Lina Vrubliauskienė +370 5 268 4275. Ieva Vyšniauskaitė +370 5 268 4156.
The bottom of the recession may have been reached in the
1st quarter of 2010
 After two periods of expansion on a quarterly basis, Lithuanian GDP fell by 4.1% quarter on
quarter (2.9% year on year) during the 1st quarter of 2010, according to the first statistics
estimate. The contraction of GDP was to be expected because the economy was affected
by several adverse factors, such as the shutdown of the Ignalina nuclear power plant and
increases in oil and other commodity prices in the world markets. The recovery in exports
was not large enough to compensate for the persisting contraction in domestic demand.
 We remain cautiously optimistic and expect economic growth on a quarterly basis to
become positive starting the 2nd quarter of 2010. Most recent business surveys point to a
slow revival in activity. Consumer confidence has also gradually become less negative, and
the housing sector is showing signs of stabilisation.
 The forecasted upturn during the 2nd quarter will be led by the export-oriented
manufacturing sector, but domestic sectors will also show somewhat better results. The
economic downturn affected individual manufacturing sectors unevenly, and their recovery
will vary as well. Given 1st quarter results, we are becoming more optimistic regarding the
recovery of production volumes of, among others, rubber and plastics, wood, and paper
products.
Recovery of exports did not offset the
continuing contraction in domestic demand in
the 1st quarter of this year
The slow recovery of the Lithuanian economy
observed in the second half of 2009 failed to
continue this year. While the Lithuanian economy
recorded positive quarterly growth rates in the 3rd
and last quarters of 2009, in the 1st quarter of 2010
Lithuanian GDP fell by 4.1% on a quarter-on-
quarter basis (2.9% year on year), according to the
first statistics estimate.
The largest decrease in the value added was
observed in the construction sector as the real
estate market continued to stagnate. The change in
the value added created by the agricultural sector
was close to the decrease in the value added of the
whole economy, while the industrial sector recorded
the smallest decline in the value added. The decline
in the value added was somewhat absorbed by
positive changes in the indicators of transport and
storage enterprises.
GDP growth, quarter-on-quarter
-16
-12
-8
-4
0
4
2004 2005 2006 2007 2008 2009 2010
Even though the 1st quarter GDP results cannot
necessarily be regarded as good news, they were
slightly better than we forecasted. The GDP decline
in the 1st quarter was expected, given the following
adverse factors that played a part in economic
developments during that period.

2. The Lithuanian Economy
Economic Research Department, Swedbank
01 • 2010 05 18
2 (4)
First, despite an improvement in confidence,
household consumption remained anaemic due to
falling wages, poor employment prospects, and an
omnipresent cautiousness regarding spending.
Even though the share of electricity in the
consumption basket is quite small, a 30% increase
in electricity tariffs for household consumers due to
the decommissioning of the Ignalina nuclear power
plant exerted a further significant negative shock to
household spending. Second, although there were
some first signs of stabilization in the real estate
market (visible in the somewhat increased activity
and the slowdown in the decline of residential real
estate prices; over March 2010, prices in the capital
of Vilnius increased by 3.3% on a monthly basis),
the real estate market continued to stagnate. Real
output in the construction sector declined by 43%
during 2009, and contracted further by 40.8% year
on year in the 1st quarter. Investment activity
overall is likely to have kept on falling, given the
still-high spare capacity, high risk estimates, and
uncertainty about domestic and external demand
developments.
Finally, companies were subject to yet another set
of challenges in the beginning of the year because
of the rise in costs driven by the increases in
commodity prices. An increase in gas prices in
world markets, for instance, affected the
manufacturing of chemicals and chemical products.
The rise in electricity prices for companies due to
the Ignalina nuclear plant shutdown had an impact
on activities in the construction, paper, wood, and
textile sectors. The share of electricity in total cost
structure in these sectors in some cases could
reach about 10%. It will take more time for
companies to adjust to the increase in costs and/or
to pass through these cost increases to customers
because the recovery in domestic demand is
several months away and the revival in external
demand still insufficient.
Another setback is highly unlikely this year…
Even though some of the aforementioned adverse
factors will continue to be felt over the year to some
extent, the 2nd quarter will bring more favourable
developments. We are of the opinion that the
bottom of the economy has been reached;
however, we remain cautious and expect a slow
recovery going forward. Quarter-on-quarter GDP
rates are likely to be positive starting in the 2nd
quarter, while, on an annual basis, quarterly GDP
growth might be negative for some time.
There is no reason, however, to forecast another
setback of a large magnitude this year. Leading
indicators have pointed to a revival in activity for
several months: industry, retail, and services
sentiments have been generally on an upward trend
since the last quarter of 2009. Consumer sentiment
has also been improving since November 2009.
Consumer confidence indicator
-60
-40
-20
0
20
2008 2009 2010
-80
-40
0
40
80
120
Consumer confidence indicator (l.s)
General economic situation over next 12 months (l.s)
Unemployment expectations over 12 months (r.s)
Financial situation of households over next 12 months (l.s)
Savings over next 12 months (l.s)
Data on Lithuania’s large export-oriented industrial
sector lead us to forecast somewhat better
developments starting in the 2nd quarter. The year–
on–year contraction of industrial production has
also been slowing since May 2009, while, over the
1st quarter of 2010, industrial production contracted
by 4% compared to the same period a year ago1
,
which is a much smaller decline than during the last
quarter of 2009. Over March, industrial production
rose by 1% year on year (the first increase in
annual terms since October 2008)
Manufacturing activity results might not be
spectacular as of yet, given the reliance of the
sector on the performance of the Orlen Lietuva
(previously Mazeikiu Nafta) oil refinery. The closing
down of this refinery for repairs for approximately a
month in the beginning of the year was one of the
main factors behind the fall of manufacturing activity
by 6.4% year on year over the 1st quarter of 2010.
Manufacturing activity excluding refined mineral
products, meanwhile, rose by 1% over the 1st
quarter compared with the same period a year ago,
and, over March, increased by 16% month on
month and 5.3% year on year.
We forecast industrial production to still contract
overall this year, and some ad hoc movements are
possible, given the uncertainties regarding domestic
recovery and mixed signals coming from the main
trade partners. The improvement in industrial
1
None of the industrial production indicators in this and
the following paragraphs are seasonally or working-day
adjusted.

3. The Lithuanian Economy
Economic Research Department, Swedbank
01 • 2010 05 18
3 (4)
production results, however, is unlikely to face
material impediments this year.
Lithuania’s industry, year-on-year
-30%
-20%
-10%
0%
10%
20%
2006 2007 2008 2009 2010
Industrial production
Manufacturing (refined petroleum products excluded)
Industrial confidence indicator
-80
-60
-40
-20
0
20
40
2008 2009 2010
Industrial confidence indicator
Assessment of stocks
Production expectations over the next month
Assessment of total orders
Even considering the drastic contraction rates in
2009 and thus the very low comparative base, the
rebound of the transport sector is one of the most
significant. The sector appeared to be surprisingly
resilient in spite of some adverse factors, including
cost increases and the elimination of preferential
tax rates for biofuel starting in the beginning of
2010. This improvement is primarily driven by the
increase in cross-border, rather than domestic,
services.
Domestic demand-oriented sectors might
experience the first glimpses of light at the end of
the tunnel starting in the 2nd quarter as well. As
mentioned above, confidence indicators portray
steadily improving expectations, while retail sales at
the end of the 1st quarter also showed better
results.
Manufacturing production volumes improving,
though individual sector developments uneven
The economic downturn affected manufacturing
sectors unevenly; however, hardly any sector
started this year without a scratch. Whereas
companies expect to break even or show a profit at
the end of this year, the majority of them consider
2009 a lost cause and are content to have survived.
Industrial production, year-on-year
-80% -60% -40% -20% 0% 20% 40%
Transport
Machinery repairs
Metals
Manufacturing
Furniture
Food
Beverages
Textile
Wood
Optical instruments
Chemicals
Rubber, plastics
Paper
2009 (IV) 2010 (I)
Food, tobacco, and refined mineral product sectors
proved to be the most resilient in 2009 (it is though
necessary to mention that these sectors are
generally considered less susceptible to business
cycle fluctuations). Production of paper and related
products also experienced a less severe decline in
their production volumes. The computer and optical
equipment sector, the one higher-value-added
sector with a more or less significant share in
Lithuania’s total industrial production volumes, was
able to grow last year mostly due to its successful
previous penetrations into the niche export markets.
Developments in the machinery repairs sector have
been highly uneven as companies might have
preferred to fix rather than buy new equipment in
certain periods; meanwhile, transport equipment,
furniture, textile, and wood and building material
production fell severely during the first half of 2009.
Although generally less susceptible to business
cycle fluctuations, manufacturing of chemicals and
chemical products plunged in the first half of 2009
due to the fall in prices of pesticides and increase in
gas prices in world markets. In terms of value
added, it appears that medium- value- added
sectors, which occupy the larger share of
Lithuanian industrial production, have been overall
more resilient.

4. The Lithuanian Economy
Economic Research Department, Swedbank
01 • 2010 05 18
4 (4)
Exports of goods, year-on-year
-20% 0% 20% 40% 60% 80%
Optical instruments
Chemical products
Food
Textile
Metal etc
Furniture
Machinery
Mineral products
Other
Wood
Plastics
Paper
Transport
2010 (I)
As industrial production starts to show the first signs
of recovery, some sectors will be driving growth,
and some may be experiencing difficulties for a
somewhat longer time. Compared with the
contraction during the first three quarters of 2009,
production of paper, wood, textile, and food
appears to have rebounded the most. Metals have
also shown improvement, although, after seemingly
strong growth in the last quarter of 2009, production
fell on a yearly basis again in the 1st quarter of
2010. Chemicals and chemical product growth had
already moved into positive territory in the second
half of 2009, while manufacturing of rubber and
plastics products, after contracting during all of
2009, registered a quite comfortable positive growth
rate in the 1st quarter of 2010.
It is apparent that the increase in production
volumes in most sectors (for instance, plastics and
rubber, textile, wood, and, to some extent, metals,
was due to the recovery in external demand. For
some sectors, however, this is not so clear:
chemicals and chemical product exports improved
only marginally last year, while they fell by 11.6%
during the 1st quarter. Exports of food also declined
on a yearly basis in the 1st quarter; however, the
large share of the production of the sector (about
60% of the total) is consumed domestically.
The sectors that took the lead in export recovery at
the end of 2009 due to improvement in external
demand – for instance, wood, furniture, plastics,
and rubber – are likely to continue performing well.
The good news is that the majority of domestic
demand-oriented sectors, except building materials,
are generally considered less susceptible to
business cycle fluctuations. Thus, food,
pharmaceuticals (about 55% consumed in
Lithuania), and also paper (about 58% sold in
Lithuania) are likely to be able to increase their
production this year. Building materials are unlikely
to rebound until the middle of 2011, while
beverages (close to 80% of production sold in
Lithuania) will also be experiencing difficulties for
some time to come.
The longer-term developments in Lithuania’s
industrial sector should be on a subtler and more
complex level, and should be promoting a shift in
industrial structure. Even though traditional
manufacturing industries like wood and metal
processing will always play an important role in
Lithuania due to the available resources, growth in
the higher-value-added products will be required to
generate sustainable growth - i.e., sophistication of
the products, more effective use of capital, the
strengthening of horizontal links, and the creation of
new clusters within the Baltic region.
Ieva Vysniauskaite
Swedbank
Economic Research Department
SE-105 34 Stockholm
Phone +46-8-5859 1028
ek.sekr@swedbank.com
www.swedbank.com
Legally responsible publisher
Cecilia Hermansson, +46-88-5859 1588.
Lina Vrubliauskienė, +370 5 268 4275.
Ieva Vyšniauskaitė, +370 5 268 4156
Swedbank’s monthly newsletter, The Lithuanian Economy is published as a service to our
customers. We believe that we have used reliable sources and methods in the preparation
of the analyses reported in this publication. However, we cannot guarantee the accuracy or
completeness of the report and cannot be held responsible for any errors or omissions in
the underlying material or its use. Readers are encouraged to base any (investment)
decisions on other material as well. Neither Swedbank nor its employees may be held
responsible for losses or damages, direct or indirect, owing to any errors or omissions in
The Lithuanian Economy.