GDP of Lithuania grew by 5% over three quarters of 2008

Statistics Lithuania informs that based on available statistical data and econometric models, GDP in III quarter 2008 totalled LTL 30 290.6 million at current prices and, as compared to III quarter 2007, grew by 3.1%. The results of III quarter 2008 were conditioned by the slowdown in the growth rates of production and consumption of goods, while the increase in the gross value added – by the growth in the value added generated by agricultural and service enterprises.

Over three quarters of 2008, GDP reached LTL 83 355.9 million at current prices and, compared to three quarters of 2007, increased by 5%. In general, in 2008, not a single economic activity could be distinguished as the one making the decisive impact on the growth in the gross value added in the country – the increase in the value added generated over three quarters 2008 was close to the national average in all economic activities.

Changes in GDP. Compared to the respective period of the previous year

^* First GDP estimate.

Over three quarters of 2008, GDP per capita made LTL 24 797.8 (in III quarter – LTL 9021).

In III quarter 2008, compared to II quarter 2008, seasonally and working day adjusted, GDP increased by 0.4%, while compared to III quarter 2007 – by 2.8%.

Changes in GDP

GDP at current prices

Lithuanian economy slows on weakening domestic demand

Lithuania”s economy expanded in the third quarter of 2008 at the slowest pace in nine years as domestic demand weakened after bank lending froze. Annual growth eased to a preliminary 3.1% from 5.2% in the previous quarter, the Statistical Department of Lithuania said in an e-mailed statement today.

The median estimate of five economists in Bloomberg survey was 3%. An economic boom sparked by entry into the European Union in 2004 ended after accelerating inflation curbed consumer buying power. Credit growth, real estate prices and domestic spending, key drivers of the expansion, are slowing. Increasing risk of a global recession also threatens to curb growth as demand wanes in export markets, reports ELTA.

“The forecasted slowdown has come,”” said Rimantas Ruckis, chief economist at Vilnius DnB Nord Bankas. “Domestic demand had been driven by strong credit growth and it didn”t correspond to reality,” added Ruckis.

Growth in the third quarter was driven by a good harvest and rising output at oil refinery Mazeikiu Nafta, the country”s biggest company, economists said. The outlook for exports is “worrying”” and a potential drop in consumption further raises the risk of a recession next year, according to analysts. “In reality, the outlook is even weaker, as the recovery of the oil refining capacity raises the growth figures of manufacturing output artificially,”” said Anssi Rantala, a senior analyst with Helsinki-based Nordea Markets. Growth averaged 5% through the first nine months this year, the Statistical Department said. The central bank estimates that growth may average 4.2% this year before slowing to 1.2% in 2009. “The slowing of the economy is occurring more suddenly, and will be deeper than expected,”” the Bank of Lithuania stated on October 23. “This is fundamentally based on worsening expectations by people and businesses about economic developments amid the global financial crisis.”” Lithuania”s economy continued to grow in the third quarter while its Baltic neighbors, Latvia and Estonia, slipped into recession in the second quarter. Domestic consumption is likely to weaken further in coming quarter as inflation, which accelerated to 11% in September, cuts consumers” buying power, the central bank said. Retail sales fell 3.3% in August, suggesting that consumption is weakening on tumbling consumer confidence. The rate compares with 27.1% growth in February.

EU leaders urge reforms as recession signs mount

European leaders called Wednesday for a new world financial order to prevent future financial crises, as growing signs of global recession dampened optimism over government efforts to bail out banks.

The United States reported its biggest monthly decline in retail sales in more than three years, and Europe offered negative economic data and outlooks of its own. Markets around the world fell.

At a meeting of European leaders in Brussels, Britain and Germany joined France in calling for an international summit this year to draw up a new world financial system.

Earlier this week, governments around the world pledged $3.2 trillion US to take stakes in banks to help them stabilize, which led to a rally in world markets on Monday.

But that optimism was quickly overshadowed by fears that major economies are headed for recession despite the government intervention.
“By restricting flows of credit to households, businesses, and state and local governments, the turmoil in financial markets and the funding pressures on financial firms pose a significant threat to economic growth,” U.S. Federal Reserve chairman Ben Bernanke said on Wednesday.
It will take some time to restore normal flows of credit, he said. The dollar rose against the euro after his comments.

The Dow Jones industrial average fell 3.3 per cent and the S&P 500 index was down 3.4 per cent.

European shares shed six per cent. Oil fell more than $3 US per barrel.
In Brussels, British Prime Minister Gordon Brown and German Chancellor Angela Merkel backed a proposal by French President Nicolas Sarkozy to hold a meeting to revamp financial structures set up at the Bretton Woods conference in 1944.

“I believe a forum to decide on big changes in the international economy can be held in the next few months,” Brown told a news conference just before a two-day summit.

Dutch Finance Minister Wouter Bos said a stronger role for the International Monetary Fund was needed, “in the absence of American leadership at the moment.”

The United States on Tuesday offered to take up to $250 billion US worth of equity in its banks, an astonishing move in the home of free market capitalism.

President George W. Bush stressed that the move was temporary. “I’m confident in the long run this economy will come back,” he told reporters before a cabinet meeting Wednesday.

The U.S. move followed an agreement by European leaders on Sunday to undertake a 2.2 trillion-euro ($3 trillion US) rescue of European banking giants, which have been hit by a credit crunch brought on by defaulting mortgages in the United States.

Signs of a looming recession abounded Wednesday.

The U.S. government said retail sales dropped 1.2 per cent in September, the biggest monthly drop in three years, and wholesale prices dropped 0.4 per cent. Manufacturing activity in New York state fell in October.
U.S. bank JPMorgan Chase said third-quarter profit plunged 84 per cent, while Wells Fargo reported a drop in earnings of 25 per cent.
British unemployment rose to 5.7 per cent, its highest level in eight years, official data showed.

German economic growth will only be slightly above zero in 2009, Finance Minister Peer Steinbrueck said. And two U.S. Federal Reserve officials noted risks to the world’s biggest economy.

Also on Wednesday, the European Central Bank said it would allow banks to swap a larger range of their assets for central bank funds and offer extra U.S. dollar liquidity through foreign exchange swaps.
Southeast Asian nations, backed by $10 billion US from the World Bank, were the latest to join the rescue effort, agreeing to create a multibillion fund to help banks.

The fund will buy up toxic debt and support banks in the region, Philippines President Gloria Macapagal Arroyo said.
Iceland, driven close to bankruptcy as frozen credit markets caused its banks to fail, cut interest rates by a staggering 3.5 percentage points as its officials pursued efforts to get help from Russia via a multibillion-euro loan.

The economy is dominating the U.S. presidential campaign, which sees a final debate between the candidates on Wednesday.
Democrat Barack Obama has accused Republicans of presiding over unfettered financial deregulation while John McCain has sought to regain his footing on economic issues after drawing criticism for saying U.S. fundamentals were strong.

Lithuania government approves draft budget for 2009

Lithuania’s government said on Tuesday it approved a draft 2009 budget with a deficit of 2.3 percent of projected gross domestic product (GDP), as tax revenues were expected to fall from this year.
All three Baltic states are struggling to balance their public finances as their economies are rapidly cooling, with Latvia and Estonia already in technical recession.

“I think it is a realistic budget, based on sound calculations,” the Finance Minister Rimantas Sadzius told a press conference after the cabinet meeting.
The finance ministry on Tuesday cut its economic growth forecast for 2009 to 1.5 percent from 4.5 percent in April, two days after the centre-right and populist opposition led in the first round of general elections on Sunday.

Sadzius said falling revenues, especially from the value-added tax (VAT), were behind the planned budget deficit.
The budget proposal set spending for next year at 28.2 billion Lithuanian litas ($11.2 billion), up from 26.6 billion litas planned in 2008, while revenues were seen falling to 25.5 billion litas from 25.6 billion litas estimated for this year.

The national budget, which includes state and municipal budgets, had spending and revenues set at 30.2 billion litas and 32.8 billion litas respectively.

BUDGET SCARES OPPOSITION

“The situation with the budget is scary… We would seek to cut the deficit,” Andrius Kubilius, a leader of the opposition Homeland Union-Lithuania Christian Democrats, which might become the biggest party in the parliament after the second round of the election, due on October 26.
“The main question is whether we would be able to borrow enough in the current global financial situation,” he added.
The finance minister declined to comment on the plans to launch a 400 million euro ($550 million) eurobond issue, which was postponed several times this year due to global financial turmoil.

Sadzius only said the government was planning to borrow both at home and abroad, with the general borrowing requirement, including refinancing of maturing loans, to amount close to 6 billion litas next year.

Prime Minister Gediminas Kirkilas tried to downplay worries about the budget deficit.
“The situation is not tragic since our deficit will be among the lowest in the European Union,” he told Lithuania state radio.
Kirkilas said deficit was unavoidable due to the need to raise wages for public sector employees, including a long-term agreement reached with teachers’ trade unions.

Neighbouring Latvia said it planned to have a deficit of 1.85 percent of GDP, while the Estonian government said its next year’s draft budget is a balanced one, a claim disputed by media in the country.

Reporting by Nerijus Adomaitis

Global business

Lifelines were thrown to European banks. The Dutch, Belgian and Luxembourggovernments partly nationalized Fortis amid uncertainty about its ability to sell assets it holds in ABN AMRO, a Dutch bank.Dexia, a Belgian-French bank, received a $9.2 billion government cash injection. InBritain, Bradford & Bingley, a specialist in buy-to-let mortgages, was nationalized and some assets sold to Spain’s Santander.Hypo Real Estate, Germany’s second-largest property lender, obtained $51 billion in credit guarantees from the government and the banking industry. And Glitnir, Iceland’sthird-largest bank, was nationalized.

Ireland’s government took the extraordinary step of guaranteeing all deposits in six Irish banks after their share prices suffered huge losses. The guarantee covers around $575 billion of liabilities, more than twice Ireland’s gross domestic product.

The Reserve Bank of India stepped in to reassure depositors that ICICI was financially sound amid reports of a wave of cash withdrawals from the bank. AndRussia provided a further $50 billion to increase liquidity in its banking system. This comes on top of a $130 billion package doled out to Russian banks in the form of loans, tax cuts and delayed tax payments.

GE said it was planning to offer $12 billion in common shares, and that Warren Buffett’s Berkshire Hathaway would buy $3 billion in preferred shares. Jeffrey Immelt, the conglomerate’s boss, was active this week in pressing politicians to pass the bailout package because of the “negative ripple effects” of the financial crisis on business.

A consortium led by Abertis, a Spanish infrastructure company, pulled its $12.8 billion proposal to take over the running of Pennsylvania’s turnpike, the state’s main toll road. In May the consortium, which includes Citigroup, won the bidding for the lease with the backing of Pennsylvania’s governor, but the privatization was resisted by legislators.

Estonia may be unable to join the eurozone in 2011

Government’s recent decision to excise duty on alcohol and gas means that Estonia may be unable to join the eurozone also in 2011.

Maris Lauri, macroanalyst of Hansabank, told Postimees that higher excise duties that are aimed that bringing additional revenue to the state budget will also push up inflation which makes it difficult for Estonia to reach the Maastricht criteria.

“The recent decisions will definitely have an impact on inflation. I don’t think that Estonia may have to postpone eurozone entry forever, but much will depend on what will happen with world oil price,” said Lauri.

The analyst added that she is worried that although the oil price on world markets has been falling recently, prices in Estonia remain stubbornly high. “If it starts rising again we will be in a very tight spot,” said Lauri.

Another analyst Heido Vitsur said that inflation is the key obstacle that is keeping Estonia away from eurozone.

Estonian President Toomas Hendri Ilves said recently in his speech to MPs that many current problems in the Estonian economy would not exist if Estonia were already in the eurozone.

 

Toomas Hõbemägi

Estonia sees end to Russian oil transit

Estonia has seen a steady fall in volumes of Russian oil product exports and is eventually expecting the flow to dry up completly, a top railway official said, Reuters writes.

Russia used to export a quarter of its heavy fuel oil, about 25 million tonnes a year, as well as light products, through Estonia’s port of Tallinn. But a diplomatic quarrel led Russian railways to divert most of the light products to its own ports.

This will also in the future apply to heavy fuel oil, said Estonian Railways Chairman Kaido Simmermann.

"In three or four years we are planning to have no Russian oil through Estonia. Maybe some smaller volumes, but not like what we have today," he told Reuters in an interview on Thursday.

He said part of the heavy fuel oil shipments coming from the Kirishi refinery would be diverted to Russia’s Ust Luga port.

"They will have the port ready at the beginning of next year or in the middle of next year," he said. "So we are preparing ourselves for that new situation."

Owners of EBS complete a masterclass deal with the state

Estonian businessmen who own Estonian Business School (EBS) building in central Tallinn have completed a dream business deal with the state.

Äripäev writes that the heart of the matter is ownership of the school building of EBS that offers private post-graduate education in central Tallinn.

The businessmen, Madis Habakuk who owns EBS, his son Mart Habakuk and two businessmen Sulo Nigul and Arle Mölder should be satisfied: they own a building that is estimated to be worth EEK 130 million, but have paid only about EEK 30 million for it.

Not surprisingly, the four are large political donators and in last general elections donated EEK 800,000 to Centre Party and Reform Party.

Informed sources say that the four men’s plans are much bigger and they are now planning to build skyscrapers on the centrally located land owned by EBS.

In 2005 they proposed to the City of Tallinn to build a 30-storey highrise building on the lot.

by Toomas Hõbemägi

Five suggestions for economic fall

by Gertrud Levit

The following is an opinion article written by Kristjan Lepik, an analyst from the webpage tarkinvestor.ee.

“”How serious is the situation in Estonia’s cooling economy?” someone asked me the other day, despite that person caring least about economy among my circle of acquaintances.

A year ago he was surprised to learn that balance isn’t just a French soup. The topics of stalling economy and economic fall have been so thoroughly discussed in newspapers that even ordinary people are thinking on the topic.

And some time should be dedicated to thinking, as the economic fall will influence everyone somewhat.

The economic was first seen in real estate sector and in order to understand the economic connections we can look at an example. If a real estate developer is facing hardships, he doesn’t take on new projects. As a result, construction companies run into trouble, because their services aren’t needed anymore. The construction company lays off people, decreases bonuses, and employees have to look deeper into their wallets. The BMW leased a year ago during the boom has to be returned. As the consumer can’t buy, the car-sellers earn less profit and also reduce the number of employees. Car-seller Jaan cancels his membership at a sports club and his wife Kati can’t afford to go to the solarium weekly anymore.

As a result of such small events, the state accrues fewer taxes and has to cut down on the state budget. That lowers the number of tenders for private sector and the income of state employees, which again means less consumption. Less consumption is a problem for Estonian economy, which is largely built on domestic consumption.

Such a circle could go on for eternity, but the moral of the story is that different sectors in economy are tightly connected, even if the effects don’t always arrive at the same time. Some people already feel the low point; others still have a while to go until then. But during the year, the economic low point will start influencing more and more people.

What should one do when the economy is cooling? Here are five of the most important aspects in my mind.

Be reasonable when taking a loan. The flow of cash to here from Scandinavian banks was one of the main reasons for our economic growth. But when our incomes grew that swiftly, people forgot the problems. People should make sure they could still pay their loans, even if they loose their job for half a year or if their income decreases. Because one of the results of cooling economy is that wages stop growing and it’s harder to find work. Nearly every loan with more than 10 pct of yearly interest rate is unreasonable. Not to mention SMS-loans, which mean a financial suicide.

Secondly, consume less and save more. Estonians consumption has soared, but it has been financed by loans. It could be compared to the life of a mayfly – the world open is open today, no matter how hard it will be tomorrow. During hard times it’s easier for those who have saved some, meaning that in order to survive Estonians need to learn to save more and consume less.

Thirdly, if you consume, consume domestic products. If the economy isn’t doing that well, then supporting local manufacturers will aid everyone, indirectly even oneself. Look around Estonia instead of travelling to Turkey, buy domestic products, and use local services.

Fourthly, educate yourself. The problem of Estonia is that the efficiency and quality of our medium employees is far below the medium in Western Europe. For economy to recover, everyone has to act smartly. It might be professional cretinism, but I often choose a specialised article to be read during weekend or lunch in order to educate myself. Perhaps cooling economy is the time when we should up our quality.

Fifthly, trust your common sense. If economy is cooling, people are laid off and the prices of real estate fall. Everyone is nervous. Newspaper headlines turn darker and historically people become unsure about the future. But don’t forget that economy has cycles – every rise is followed by a fall. I think that Estonian economy needed to cool down, because people started thinking too positively already. Had the fall came about later, it would have been more painful. So while the economic situation is uncomfortable for a lot of people, we need it to fix the course of Estonian economy to be able to offer better quality when we start rising again.

I just went to the beach with my children and thought of all I had wrote. The sea is still blue and the children still laugh, no matter what GDP is saying. So in the longer perspective it wouldn’t matter, even if the economy would continue to fall for the coming 12 months. We just need to be smart as a citizen, as a state, as an entrepreneur. Everyone can help, as quality is defined by small things.”

EU assistance to renovate 150 public buildings

The EU assistance of the new 2007-2013 stage will be allocated for the renovation of 150 public buildings.

Economy Minister Vytas Navickas confirmed the lists of the national projects
funded by the EU assistance according to two measures. It is planned to allocate more than 425 million litas (122.98 million euros) for the implementation of 131 projects according to the measure “Renovation of public buildings at national level.” According to the other measure, 38.1 million litas (11.02 million euros) will be given to 19 projects of public building renovation.

The assistance will be used for the insulation of the buildings, the replacement of windows, the renewal of energy systems and for the installment of other energy-saving measures. Among the biggest projects are the modernization of Siauliai County Hospital Clinic of Children Diseases, Alytus Regional S. Kudirkos Hospital and Palanga Children’s Rehabilitation Sanatorium “Palangos Gintaras”.