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Lithuania Country Risk Report Q2 2018

Lithuania Country Risk Report Q2 2018

Executive Summary

Core Views

The Lithuanian economy will continue to record robust levels of growth over the coming quarters, buoyed by strong domestic demand. That said, rapidly rising labour costs and higher inflation will ultimately leave this pace of growth unsustainable, with 2017 having marked a peak in the growth cycle.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Labour Market To Forestall Stronger Growth
We estimate economic growth in Lithuania to have peaked to 3.6% in 2017, and project real GDP growth to ease to 3.3% in 2018
and 2.7% in 2019. The slowdown will be driven by weaker gains in the labour market, as well by a gradual erosion in the country's
competitive edge, underpinned by the rapid rise in the country's unit labour costs. A greater role in driving economic growth will instead
be played by rebounding investment
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 GOODS IMPORTS IN 2015
TABLE: TOP 5 GOODS EXPORTS IN 2015
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
Implications Of ECB's Dovish Taper
The European Central Bank's tapering announcement in October points the way to a gradual exit from extraordinary accommodation,
but we continue to believe that policy will remain very easy for years. Our core view is that the ECB will continue expanding its balance
sheet until the end of 2018 and keep its benchmark interest rates on hold until 2020, a policy mix that will keep the euro on the back foot
against the US dollar
Structural Fiscal Position
TABLE: MAIN REVENUE & EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
EUR: Rally Running Out Of Steam
We maintain a bearish outlook for the euro, predicated on our hawkish policy rate forecasts for the US Federal Reserve and our belief
that expectations for the pace of European Central Bank tightening are beginning to overshoot
TABLE: BMI EUROZONE CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Lithuanian Economy To 2027
Structurally Lower Growth, But Outlook Remains Stable
Unfavourable demographics, a low savings rate, and declining global trade volumes will see real GDP growth trend lower in Lithuania
over the coming decade. That being said, low debt levels and an attractive operating environment will help sustain investment growth,
4
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Long-Term Political Outlook
Policy Will Struggle To Navigate Key Challenges
Most of Lithuania's main political parties enjoy a degree of consensus on the country's main issues, but future governments will struggle
to navigate policy around an increasingly nationalist electorate, an uncertain future for the European Union, and tense relations with
neighbouring Russia
TABLE: POLITICAL OVERVIEW
Chapter 4: Operational Risk
Operational Risk
TABLE: LABOUR MARKET RISK INDEX
TABLE: LOGISTICS RISK INDEX
TABLE: CRIME AND SECURITY RISK INDEX
TABLE: TRADE AND INVESTMENT RISK INDEX
Chapter 5: BMI Global Macro Outlook
EM Growth To Accelerate In 2018 While DMs Plateau
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES ’ REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS ’ REAL GDP GROWTH, % y-o-y

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