The Lithuanian Economy - No 7, October 4, 2011; As exports decelerate, consumption increases

1. The Lithuanian Economy
Monthly newsletter from Swedbank’s Economic Research Department
by Nerijus Mačiulis, Vaiva Šečkutė No. 7 • 4 October 2011
As exports decelerate, consumption increases
 The growth of exports in goods reached 38.3% during the first seven months
of 2011 compared with the same period in 2010. Food, agricultural products,
and mineral products have remained the major contributors to export growth
during the past two years. However, the importance of machinery, transport,
chemicals, and plastics has increased.
 Exports to the EU countries still amount to 60% of all exports in goods; and
these countries by far remain the main destination for Lithuanian goods.
During the last few years, the export share to the CIS region has expanded
while the export share to the EU has decreased. As growth in the euro area
ebbs, it is likely that this trend will continue. Overall, a rapid slowdown in
growth of exports is likely.
 As exports growth decelerates, the economy is becoming more dependent
on domestic consumption. Fortunately, global uncertainly had little impact on
household confidence and consumption – in August, retail trade, except of
motor vehicles, increased at the fastest pace in more than three years.
quarter of 2006. The share of transports in total
Record breaking export growth starts to exports in services increased from 51.1% in 2005
decelerate (55.3% in 2004) to 58.6% in 2010, while the share
The strong growth in exports has continued this of tourism services decreased from 31.8% in 2004
year – the nominal growth of exports in goods to 25% in 2010. The transport sector, however,
reached 38.3% in the first seven months of this was among the hardest hit in 2009, when exports of
year, compared with the same period in 2010. its services declined by 23.4%.
However, the increase in exports of goods is
decelerating rapidly – growth reached 49.7% in the Exports, million LTL
first quarter, and declined to 33.5% in the second.
7000
The export growth in goods produced in Lithuania
6000
decreased from 41.4% in the first quarter to 22.3%
in the second one. Exports of services increased by 5000
10.9% during the first seven months of this year, 4000
but their growth decelerated even more rapidly –
3000
from 24.0% in the first quarter to 4.7% in the
second. 2000
Exports of goods exceeded 2007 levels at the 1000
beginning of 2010. Export growth rates have 0
remained above 2010 this year, except for services. 2004 2005 2006 2007 2008 2009 2010 2011
Exports of services expanded at a much slower Exports of goods
pace and, due to declining or even negative annual Exports of serv ices
Exports of goods produced in Lithuania
growth rates, exports of services dropped below the
2007 level in July. Source: Statistics Lithuania, Bank of Lithuania, Swedbank
The transport sector has been the main contributor Exports in tourism services had been decreasing for
to the growth of services exports, from the second the seven quarters from the second half of 2008 to
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, +46-8-5859 7720.
Nerijus Mačiulis +370 5 2582237 Lina Vrubliauskienė +370 5 258 2275. Vaiva Šečkutė +370 5 258 2156.

2. The Lithuanian Economy
Economic Research Department, Swedbank
No. 7 • 2011 10 04
the second quarter of 2010. However, these exports machinery and transport became smaller beginning
have since been rebounding at an accelerating in 2008; however, the majority of these goods are
pace, and their growth exceeded the growth of re-exported and therefore are not as related to the
exports of transport services during the first three real Lithuanian economy.
months of this year.
Export structure, %; 2004-2011(January-July)
During 2011 or 2010, some groups of products
100%
demonstrated growth rates higher than those
90%
recorded for at least the past five years. The 11.9% 9% 8% 8% 6% 6.7% 6% 5.5%
80%
exports of chemical products increased by 59.5% 10.0% 11% 12% 16.0% 15.6% 15.8% 14.9% 15.9%
70%
this year – 5.5 percentage points more than in the
60% 21.8% 21% 23% 17.3% 18%
boom year of 2008. Export growth rates of transport 23%
19% 18.9%
50%
(56.7%), metal (43.7%), machines and equipment
40% 21.5% 24%
(35.3%), wood (34.2%), and textiles, wearing 25.2% 27% 24% 14% 25% 25.0%
30%
apparel, and leather (20.8%) hit record levels as 11% 9.7% 9%
20% 10% 8% 7.6%
well. 11.4% 11%
10% 14% 17% 16% 19.6% 18% 15.8%
11.5% 13%
Growth was also significant in the higher-value- 0%
added product groups. The exports of optical 2004 2005 2006 2007 2008 2009 2010 2011
Food Wood, f urniture
instruments have increased by 40.0% this year. Mineral products Machinery , transport
Even though these exports were growing faster Chemicals, plastics Textiles. wearing. leather etc
Metal Other
during 2007-2008 than this year, the current growth Source: Statistics Lithuania, Swedbank
rate of exports in optical instruments is 13.4
percentage points higher than in 2010.
The share of food and agricultural products in total
Annual export growth, %; 2011 January-July exports doubled from 11.5% in 2004 to 19.6% in
Total except mineral products
2009. However, this sector's growth lagged behind
37.0%
Total 38.3% total export growth during the last two years. The
Other 71.3% export share of plastics and chemicals has
Chemical products 59.5% remained stable after increasing by 6 percentage
Transport 56.7%
Metal, etc. 43.7% points to 16.0% during 2004-2007.
Mineral products 42.7%
Optical instruments 40.0% Contribution of main product groups to export growth, pp
Pulp and paper 36.6%
50% Other
Machines and equipment 35.3%
Wood, etc. 34.2%
40% Metal
Food and agricultural products 32.4%
Furniture 26.2%
30% 6.3% Textiles, wearing,
Building materials 25.1%
4.1% 4.0% leather, etc.
Textiles, wearing, leather, etc. 20.8% 8.1%
20% 6.9%
Plastics 19.2% Chemicals,
18.3% 9.8% 10.3% plastics
10%
0% 20% 40% 60% 80%
Machinery ,
3.6% 4.2% 5.3%
Source: Statistics Lithuania, Swedbank 0% transport
Mineral products
-9.1%
-10%
Chemicals' and plastics' contribution to -6.6% Wood, f urniture
-20%
export growth has been increasing -4.0%
Food
-30%
There have been no significant changes in the
2008 2009 2010 7M 2011
structure of Lithuanian exports – mineral products Total
(25.0%), machinery, equipment, and transport Source: Statistics Lithuania, Swedbank
(18.9%), chemicals and plastics (15.9%), and food
and agricultural products (15.8%) keep dominating The main contributors to growth during the last
exports. couple of years have been mineral products and
The export share of textiles, wearing apparel, and machinery, equipment, and transport. During the
leather has decreased by 6.4 percentage points first seven months of this year, the contribution of
from 2004 and now amounts to only 5.5% of total chemicals and plastics (6.3%) increased the most.
exports. The other traditional sectors, such as wood Export of metals, which had been growing by 17-
and furniture, have lagged behind total export 44% beginning in 2004 (except for 2009, when they
growth for the last few years as well, as their share decreased by 31.4%), have contributed to growth
decreased from 11.4% to 7.6%. The share of by 1.5-2 percentage points during last two years.
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3. The Lithuanian Economy
Economic Research Department, Swedbank
No. 7 • 2011 10 04
The growth of exports of textiles, wearing apparel, Lithuania currently exports 6.5% of all its exports to
and leather products increased to some 21-22% in Belarus. This share has increased from 3.2% in
2010, and, this year, this product group’s 2004. However, only 1.1% of goods produced in
contribution to growth has increased to 1.3-1.5 Lithuania were exported to this country in the first
percentage points. half of 2011. Therefore, the current currency crisis
in Belarus (the rouble has depreciated by more than
Exports to CIS region have been 60% since the beginning of the year) does not pose
expanding; however EU markets will remain a systemic risk to Lithuania’s exports. Nevertheless,
the most important to local industry the negative impact on some sectors might be
Export to CIS countries expanded the most, as this stronger because of the diminishing purchasing
share increased from 16.3% in 2004 to 28.3% in the power of Belarus.
seven months of 2011. The EU countries became
the destination for a smaller share of total exports; Destination of exports of goods produced in Lithuania, %;
2004-2011(January-July)
however, more than half (60.4%) of export goods
have been sold in the EU countries this year (66.9% 100%
in 2004). The share of total exports to the EU 90%
29%
33% 34% 33% 32% 36% 33% 32%
increased more significantly only in 2009, when 80%
total exports fell by 26.6%. 70%
5%
5%
6% 6% 6% 5% 5%
60% 5%
5% 4% 4% 6%
Destination of exports, %; 2004-2011(January-July) 7% 9% 6% 6% 7% 6% 7% 6%
50% 6%
6% 6% 6% 7% 8% 8%
40% 6% 6% 5%
100% 6% 7% 5% 7%
5% 6% 6% 7%
30% 5% 6% 8% 9% 8%
90% 24% 6% 6%
31% 31% 29% 28% 30% 29% 27% 14%
20% 11% 11% 11% 9% 12% 12% 13%
80%
3% 10% 9% 8% 9% 11% 10% 8% 7% 8%
70% 4% 4% 4%
5% 5% 4% 3% 4% 5% 5% 6% 5% 5% 5% 5%
4% 0%
60% 5% 4% 5%
4% 5% 2004 2005 2006 2007 2008 2009 2010 2011
50% 5% 5% 6% 5% 6%
6% 7% Russia Latv ia Germany Poland
6% Belarus Estonia Netherlands UK
40% 5% 6% 6%
6% 7% 8% 7% France US Sweden Other
6% 10%
5% 6% 7% 9% Source: Statistics Lithuania, Swedbank
30% 9% 10% 10%
10% 9%
20% 13% 12% 9% 10%
11% 10%
10% 10%
10%
13% 15% 16% 13% 16% 16% Such sectors as building materials, for example,
9% 10%
0% made 15.3% of all its exports to Belarus in the first
2004 2005 2006 2007 2008 2009 2010 2011 half of 2011. This share has decreased from 22.5%
Russia
Belarus
Latv ia
Estonia
Germany
Netherlands
Poland
UK
in 2010; however it was much smaller in previous
France United States Sweden Other years (3.5% in 2004). Exporters of building
Source: Statistics Lithuania, Swedbank materials therefore might see their product demand
dropping more significantly in this previously
Except for Russia, the export share to other BRIC expanding market if demand in Belarus were to
countries did not demonstrate a sustainable shrink significantly. Adverse events would have a
increase from 2004. Exports of goods to India, less sizable impact on pulp and paper exports, as
China, and Brazil have constituted only 0.7% of 5.0% of all Lithuanian exports of this sector are
total exported goods this year (0.3% in 2004). 4.9% made to Belarus. Other sectors rely even less on
of all goods were exported to Canada and the US. this foreign market.
The main destinations for goods exports have The share of goods exported to Germany, which is
remained the same – Russia, Germany, and Latvia. the biggest market for Lithuanian goods, has
The share of total exports to Russia increased by 4 rebounded back to 9-10% after 2008. Latvia,
percentage points, to 16%, this year. However, however, absorbs only 10% of Lithuanian exports,
most of this is re-exports of transport, machinery, below the 13% reached during the previous
and equipment and, therefore, is not as important economic boom. During 2007-2008, a bigger share
for the Lithuanian economy. Only 20.4% of total of exports was diverted to Russia as well.
exports to Russia have been of Lithuanian origin During 2004-2011 the share of exports to the UK
this year. And a similar situation remains in all the remained the most stable (4-5%); exports to the
CIS countries, where this share equals 24.6%. other main export partners fluctuated more. The
The growth of Lithuanian goods exports to Belarus share of total exports to Poland increased from
decelerated from 46.5% in 2010 to 34.7% in the first 4.8% to 7-8%; to Belarus, by 3.3 percentage points
half of 2011 (compared with same period of 2010). to 6.5%. The export shares to Sweden decreased
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4. The Lithuanian Economy
Economic Research Department, Swedbank
No. 7 • 2011 10 04
by 1.7 percentage points to 3.4%; to the US, by 1.3 expectations were barely affected by negative news
percentage points to 3.4%. France's share in total – they declined by 2 percentage points in August
exports declined from 6-7% to 3-4%. and by 1 point in September. Retail trade sector
confidence declined a little, but still remains
The EU market’s contribution to annual growth
positive.
reached 22.6 percentage points in the first half of
this year (16.6% in 2010). Estonia contributed by far Annual change in retail trade, %, and confidence indicators
the most, as its contribution increased to 2.9% from
30
-0.3% during 2010. Latvia’s contribution grew
20
considerably as well. The CIS countries’
10
contribution to growth increased from 12.4% in
0
2010 to 15.8% in the first half of 2011.
-10
Russia, the largest trade partner, which imports -20
about 16% of all Lithuanian exports, has been the -30
main contributor to exports’ growth. Its contribution -40
to annual export growth increased to 8.6 -50
percentage points during the first half of this year -60
(4.0% in 2005). 2008 2009 2010 2011
Retail trade conf idence indicator
Consumer conf idence indicator
Contribution of main trading partners to annual goods’ Retail trade
export growth, pp Retail trade except of motor v ehicles and motorcy cles
Retail sale of f ood, bev erages and tobacco
50% Other Source: Statistics Lithuania, Swedbank
41.2%
40% Other CIS
32.7% 7.3%
28.5%
30%
Other EU
Retail trade in August continued its strong growth.
7.1% 4.9% 9.9%
20% 8.1%
Retail trade, except for motor vehicles, increased by
9.3% PL 10.1% - the highest pace in more than three years.
8.6%
10%
5.7% 7.5% DE Even consumption of food, beverages, and tobacco
-26.6%
0%
4.2% increased by 1.8%, after stagnating during the first
-4.2% RU
-6.3% seven months of this year.
-10%
-7.8% EE
-20%
It is likely that this strong growth was a
LV consequence of two important recent reforms
-30%
fighting the shadow economy – the introduction of
Total
-40% cashiers in food markets and restrictions on border
2008 2009 2010 6M 2011 crossings with a full tank of fuel (now limited to five
Source: Statistics Lithuania, Swedbank entries per month). The plan to expand the reform
and introduce cashiers in all the markets would
It is not likely that export growth rates will remain as further lower shadow economy and have a positive
high as they are now. The pace of increase in pact on retail trade and GDP numbers.
exports will probably be declining in the nearest Lithuanian economy is much better positioned to
future due to weaker growth in the EU countries – meet global turmoil than it was in 2008. But
the main destination for Lithuanian products. The memories of frequent defaults, high risk and
industrial confidence indicator dropped by 9 rampant uncertainty are still very fresh. Any news of
percentage points in September, the lowest level upcoming economic slowdown is met with
since the end of 2010. The main reasons behind pessimism and fear. A renewed recession in euro
this rapid decline were lower orders and export area and U.S. would encourage Lithuanian
expectations. households to increase savings and cut spending;
Household consumption picks up the whereas companies are likely to cautiously
reassess their investment plans.
baton, but the risk of confidence loss is
high
The slower growth of exports will have negative Nerijus Mačiulis
consequences for overall economic growth and the Vaiva Šečkutė
foreign trade balance. For now, households seem
to be willing and able to offset the negative impact
of dwindling foreign demand. Household
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5. The Lithuanian Economy
Economic Research Department, Swedbank
No. 7 • 2011 10 04
Swedbank
Economic Research Department Swedbank’s monthly newsletter The Lithuanian Economy is published as a service to our
SE-105 34 Stockholm customers. We believe that we have used reliable sources and methods in the preparation
Phone +46-8-5859 1028 of the analyses reported in this publication. However, we cannot guarantee the accuracy or
ek.sekr@swedbank.com completeness of the report and cannot be held responsible for any error or omission in the
www.swedbank.com 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
Legally responsible publisher
losses or damages, direct or indirect, owing to any errors or omissions in Swedbank’s
Cecilia Hermansson, +46-8-5859 7720.
monthly newsletter The Lithuanian Economy.
Nerijus Mačiulis, +370 5 2582237.
Lina Vrubliauskienė +370 5 258 2275.
Vaiva Šečkutė, +370 5 258 2156.
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