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Lithuania Country Risk Report Q2 2016

Lithuania Country Risk Report Q2 2016

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.


Executive Summary
Core Views
Key Risk
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
High Growth To Return On Improving Trade Environment
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
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal And Debt Outlook
No Need to Panic Despite Increasing Budget Deficit
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
TABLE: MAIN REVENUE & EXPENDITURE CATEGORIES
External Trade And Investment Outlook
Current Account Deficit Lasts On Surging Import Demand
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
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 GOODS EXPORTS IN 2014
TABLE: TOP 5 GOODS IMPORTS IN 2014
Monetary Policy
ECB: Underwhelming But Still Substantial Easing
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
The Lithuanian Economy To 2025
Moderate But Stable Growth Ahead
Although the outlook for the Lithuanian economy over the coming decade is certainly less than inspiring compared to average annual
real GDP growth of 7.2% between 2004-2007, we nonetheless maintain a positive view for the economy over the long term.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Social Democrats Enter 2016 In Pole Position
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 OVERVIEW
Long-Term Political Outlook
Convergence By No Means Assured
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
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: DEVELOPED STATES – LABOUR MARKET RISK
TABLE: DEVELOPED STATES – LOGISTICS RISK
TABLE: DEVELOPED STATES – CRIME AND SECURITY RISK
TABLE: DEVELOPED STATES – TRADE AND INVESTMENT RISK
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Unfinished Business In 2016
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE : LITHUANIA – MACROECONOMIC DATA & FORECASTS

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