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Lithuania Country Risk Report Q2 2016

  • January 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views

GDP growth will accelerate in Lithuania over the next two yearsthanks to improving trade conditions in the region and strong levelsof investment. The increase will be sustained over our longer-termoutlook by growing domestic savings from which future investmentcan be drawn, as increasing inflation dampens levels of consumption.Lithuania will record a slightly larger budget deficit over our shorttermoutlook, on the back of an increase in expenditure and stagnantrevenue growth. However, much like its Baltic neighbours, the deficitwill be small and manageable, financed through a small increase inpublic debt.Despite a return to strong export growth in 2016, Lithuania will recorda small current account deficit, which will continue throughout ourlong-term forecast period.

Nonetheless, robust financial inflows willensure the deficit remains sustainable.The Social Democratic Party of Lithuania (SDP) will perform wellat the parliamentary elections in October 2016 and hold onto theircurrent position as the majority partner in a coalition government.While the SDP will ensure a degree of continuity in current governmentpolicy, the composition of the junior coalition partners may wellshift in favour of the Liberal Movement.

Table Of Contents

Lithuania Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Key Risk5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
High Growth To Return On Improving Trade Environment8
GDP growth will accelerate in Lithuania over the next two years thanks to improving trade conditions in the region and strong levels of
investment The increase will be sustained over our longer-term outlook by growing domestic savings from which future investment can
be drawn , as increasing inflation dampens levels of consumption
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS9
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal And Debt Outlook 10
No Need to Panic Despite Increasing Budget Deficit10
Lithuania will record a slightly larger budget deficit over our short-term outlook on the back of an increase in expenditure and stagnant
revenue growth However, much like its Baltic neighbours, the deficit will be small and manageable, financed through a small increase in
public debt
Structural Fiscal Position 11
TABLE: MAIN REVENUE and EXPENDITURE CATEGORIES12
External Trade And Investment Outlook 13
Current Account Deficit Lasts On Surging Import Demand13
Despite a return to strong export growth in 2016, Lithuania will record a small current account deficit, which will continue throughout our
long-term forecast period Nonetheless, robust financial inflows will ensure the deficit remains sustainable
Outlook On External Position 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE14
TABLE: TOP 5 GOODS EXPORTS IN 201414
TABLE: TOP 5 GOODS IMPORTS IN 201415
Monetary Policy 16
ECB: Underwhelming But Still Substantial Easing16
The European Central Bank (ECB)'s monetary policy easing on
December 3 disappointed markets in terms of its depth and breadth However, strengthening economic and inflation conditions in the
eurozone suggest that the ECB may be better off holding fire, and in our view, the easing is still fairly significant despite disappointment
on the headline figures We continue to forecast a weaker euro in 2016
Chapter 2: 10-Year Forecast 19
The Lithuanian Economy To 2025 19
Moderate But Stable Growth Ahead19
Although the outlook for the Lithuanian economy over the coming decade is certainly less than inspiring compared to average annual
real GDP growth of 72% between 2004-2007, we nonetheless maintain a positive view for the economy over the long term
TABLE: LONG-TERM MACROECONOMIC FORECASTS19
Chapter 3: Political Outlook 21
SWOT Analysis 21
BMI Political Risk Index 21
Domestic Politics 22
Social Democrats Enter 2016 In Pole Position22
The Social Democratic Party of Lithuania (SDP) will perform well at the parliamentary elections in October 2016 and will hold onto
their current position as the majority partner in a coalition government While the SDP will ensure a degree of continuity in current
government policy, the composition of the junior coalition partners may well shift in favour of the Liberal Movement
TABLE: POLITICAL OVERVIEW22
Long-Term Political Outlook 23
Convergence By No Means Assured23
While Lithuania's long-term political outlook remains among the most
stable in the emerging Europe region, we nevertheless caution that the country's convergence with Western political and economic
institutions through is by no means assured In particular, we highlight the aftermath of the financial crisis as putting the country at a
critical juncture
Chapter 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
Operational Risk 28
TABLE: DEVELOPED STATES - LABOUR MARKET RISK28
TABLE: DEVELOPED STATES - LOGISTICS RISK32
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK34
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK37
Chapter 5: BMI Global Macro Outlook 39
Global Macro Outlook 39
Unfinished Business In 201639
TABLE: GLOBAL ASSUMPTIONS39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %40
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %41
TABLE : LITHUANIA - MACROECONOMIC DATA and FORECASTS43

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