Lithuania Revises GDP Growth Higher as Consumption Recovers

Lithuania’s economy expanded at a faster rate in the second quarter than previously estimated, driven by recovering consumption and the construction industry.

Gross domestic product grew 6.3 percent from the same three months of 2010, compared with a preliminary estimate of 6.1 percent released on July 28, the Vilnius-based statistics office said in an e-mailed statement today. Output rose a seasonally adjusted 0.4 percent from the previous quarter.

Lithuania’s economy, part of the Baltic region that suffered the world’s deepest recession in 2009, is growing at the second-fastest rate in the European Union after Estonia, driven by foreign demand for its products and strengthening domestic consumption. The central bank and Swedbank AB both raised their 2011 GDP forecast for Lithuania in the past month.

“Unsurprisingly, private consumption continued to grow briskly, while export and import growth slowed, but remained at good levels,” Annika Lindblad, a Helsinki-based analyst with Nordea Markets, said in an e-mailed note. “We remain confident with our forecast of around 6 percent growth this year, as the domestic economy continues to gain strength and exports are still doing well.”

The yield on Lithuania’s 10-year dollar bond rose 0.01 percentage point to 5.21 percent today.

Central Bank

The central bank raised its 2011 economic growth forecast to 6.2 percent this year, compared with a May estimate of 5.6 percent. Lietuvos Bankas said on Aug. 11 that growth may slow to 4.8 percent in 2012. Swedbank raised its estimate to 6.3 percent on Aug. 23 from a previous forecast of 4.2 percent.

The value created by the construction industry increased the most, expanding by 16.3 percent in the second quarter from the same period last year, while output created by manufacturing rose 9.3 percent, the statistics office said in today’s report. Household spending grew 6.7 percent in the second quarter and capital formation jumped 23.1 percent, it said.

“Gradually, the slowdown in global growth is also expected to weigh on Lithuania, and combined with a higher base from this year, 2012 is expected to see slower growth as still-fragile domestic demand is unlikely to be able to fill the gap from weaker export demand,” Lindblad said.

Retail Sales

Retail sales advanced 23.9 percent in the second quarter from a year earlier as consumers spent more on cars, fuel and food. Vehicle sales tripled, driven by demand from neighboring Belarus.

Exports, which make up about 65 percent of total economic output, grew 11 percent in the second quarter from the previous three-month period. Industrial output, representing about 20 percent of the economy, increased 10.4 percent in the second quarter on the year.

Austerity measures adopted in Lithuania, Latvia and Estonia are a lesson for the European periphery as it struggles through a sovereign-debt crisis, Fitch Ratings said on Aug. 25.

“In 2011, their economies are recording fast rates of GDP growth, driven by a strong export performance. External competiveness and confidence in their solvency have also been restored,” Fitch said in the report.

Neighboring Latvia grew 5.3 percent in the second quarter, while Estonia expanded at an 8.4 percent rate.

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