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Finasta upgrades its Y/Y Q4 GDP growth forecast from 2.5% to 3.0%. It leads to the full 2010 growth rate estimate, which should be very close to 1%. The economy is still stagnant in many sectors, thus we perceive the GDP growth of the last year more as a statistical than actual improvement.

Today, Lithuanian GDP is approximately at its 2006 level. The export growth was outstanding and currently it is above pre crisis level. No surprise, the hardest hit economic sector is construction, where value added dropped back to 2003 level.

In 2011, GDP should grow 3.5%. However, even the optimistic scenario does not allow us to expect that economy will return to its pre crisis peak earlier than in late 2014.

This Friday, on January 28th, Lithuanian statistics department announces initial estimate of 2010 Q4 GDP. Finasta slightly upgrades its earlier Y/Y forecast from 2.5% to 3.0% for the last quarter of 2010. It leads to the full 2010 growth, which should be very close to 1%.

Last year was a period of stabilization of Lithuanian economy. Starting from Q2, GDP posted annual growth rate. Today we still see only the first signs of economic improvement. The economy is still stagnant in many sectors, thus we see GDP growth more as a statistical than actual improvement in 2010. Economy is approximately 15% below its pre-crisis peak (compared to Q1 2008).

In 2010, Lithuanian economic growth was driven by the external demand. The producers directly or indirectly made use from the global economic recovery which was fostered by vast government stimulus packages and strong Asian economies. Lithuanian real export value has grown 2% above its pre crisis level.  However, the effect of foreign markets did not penetrate in the domestic sectors yet. They remain constrained by high unemployment and stagnant wages. Household consumption is 19% and gross fixed capital formation – 35% below their peak in 2008 and can be compared to their values in 2005. No surprise, the construction activities were the hardest hit. The sudden halt in credit process and significant deterioration of households’ conditions dragged value added generated in the construction back its levels in 2003.

In 2011, Finasta expects a pick up in the economic activity. The economic recovery should remain linked to the export markets, but more evident signs of domestic demand recovery should appear. We expect the labor market to bottom out and the credit market should gain some momentum this year. Nevertheless, Lithuanian economic growth should remain mild as 2011 global GDP forecasts seem unimpressive so far. Finasta forecasts that Lithuanian GDP will grow 3.5% in 2011. However, even the optimistic scenario does not allow us to expect that economy will return to its pre crisis peak earlier than in late 2014.

Source: lithuaniatribune.com