Lithuania: Industry-led GDP growth surprised on the upside
The biggest contribution to GDP growth came from strong industrial growth, decent retail trade data and temporary boost in agriculture production owing to a good harvest.
Industrial production grew by 4.5% in 2012 in spite of worsening economic situation of Lithuania’s major trading partners. The result would have been even better if not a temporary closure of AB “Orlen Lietuva” oil refinery (May-June 2012), which accounts for more than a quarter of Lithuanian industrial production. Indeed, excluding production of mineral products, Lithuanian industry grew at a robust 7.4% in 2012 – just a little slower than 8.1% in 2011 and 7.5% in 2010. Industrial production growth accelerated to 7.1% in Q3 and further on to 9.3% in Q4 showing a good momentum. Looking forward, the pace of growth should moderate, but nevertheless remain in positive territory (more on industrial growth see Bronze medal for Lithuanian industry).Retail trade (excl. sales of motor vehicles) growth remained decent rising by 3.2% y/y in Q4 2012. Overall, retail trade turnover increased by 4.5% in 2012 largely driven by the growth on non-food items (10.1%), while the sales of food items did not grow as fast (1.4%). The increase in retail sale turnover was particularly strong in the beginning of 2012 largely as a result of a pent-up demand. Looking forward, the effect should fade-away and the growth will be driven primarily by rising real purchasing power of households and falling unemployment. In 2012 the average salary increased by 4.5% (5.7% in the private sector), which first time since 2008 surpassed the pace of inflation (3.2%), hence the real purchasing power of households have increased by 1.3%. Increase of minimum monthly wage from LTL 850 (EUR 256) to LTL 1000 (EUR 290) from 1st January 2013 should contribute positively to the real wage growth in 2013 (at least the official one). In addition, the number of employed people have increased by 1.7% while unemployment dropped by 2%. The biggest challenge remains big income disparities, youth and long-term unemployment (26.4% and 6.5% respectively) and continuous emigration.
Value added in agriculture sector increased by 8.6% in 2012 largely driven by a temporary increase in wheat exports as a result of exceptionally good harvest. Construction sector (-2.9%) was the only sector that contracted in 2012 as a result of stagnating real estate prices and weak demand for residential apartments.
The major threats remain the ongoing uncertainty about the euro zone sovereign debt crisis, still unresolved fiscal cliff issue in the US and the risk of rising commodity prices. The main internal threats remain weak domestic demand, emigration of labor force, structural unemployment and remaining uncertainties about the future actions of newly-elected government