Infrastructure

Home page

Infrastructure

Lithuania economy shrinks worst in EU

28 April 2009 17:50 (UTC +04:00)

Bakuâ€“ APA-ECONOMICS. Lithuaniaâ€™s economy shrank a preliminary 12.6 percent in the first quarter, the most since at least 1995, when the former communist state was emerging from the collapse of the Soviet Union.
The drop, the worst in the European Union, compared with an annual 2.2 percent contraction in the fourth quarter, the Vilnius-based statistics office said in an e-mailed statement today. The economy grew a revised 7 percent in the first quarter last year. The median estimate of three economists in Bloomberg survey was for an 8.8 percent plunge in output.
Lithuania is in its worst recession since 1993 after a credit boom ended and the global economic crisis cut demand for exports. The government, with limited scope to borrow abroad because of the credit freeze, cut spending and wages in January, which led to protests and riots. More austerity measures, including a second round of wage cuts, were announced in April, amounting to about 3 percent of gross domestic product.
The second quarter is likely to freeze â€œa free-fall into the abyssâ€ and to lead to a stabilization of economic contractions as business expectations calm after a shock, Tauraite said. The bankâ€™s forecast of a 9 percent contraction for full year remains â€œrealistic,â€ she said.
Stockholm-based SEB AB, the biggest bank in Lithuania, fell as much as 3.5 percent after the report to 33.4 kronor ($4.9) before recovering to 33.9 kronor at 11:12 a.m. in Sweden. The stock traded at 36.7 kronor yesterday.
The Finance Ministry estimates the economy may contract 10.5 percent this year as the impact of the crisis intensifies. GDP will probably shrink 2.6 percent in 2010, it said.
Industrial output, which accounts for about 20 percent of GDP, shrank 13.5 percent in the first quarter as domestic demand waned on a lack of credit and falling wages, and the global economic crisis weakened exports.
Retail sales, which account for about 17 percent of the economy, fell 30 percent in the first quarter as all categories in the index fell, the statistics office said in a separate statement today.
Rating agencies Standard & Poorâ€™s, Fitch Ratings and Moodyâ€™s Investors Service cut Lithuaniaâ€™s credit ratings in the past month, citing the intensifying effect of the global crisis.
The recession is slicing into tax revenue and widening the budget deficit, making the prospect of euro adoption remote. The country, which dropped out of the euro race once already, wants to complete adoption to help weather the downturn. Source: Bloomberg