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Lithuania Country Risk Report Q4 2017


Attention: There is an updated edition available for this report.

Lithuania Country Risk Report Q4 2017

Core Views

The Lithuanian economy will post robust growth over our short-termoutlook to 2019, buoyed by a strong consumer sector and improvinginvestment climate. Rising inflation will add some headwinds afterthe economy posted strong Q117 headline growth, but won't suppressa notable acceleration in real GDP growth over the comingtwo years.

Tensions neighbouring Russia will continue to pose the largest threatto investor interests in Lithuania over the coming months. While wedo not expect an outright conflict between the two states, the threatof Russian military intervention will keep defence spending a keypriority of Lithuania's fiscal policy and encourage closer relationswith the rest of the EU.

Major Forecast Changes

We have revised up our forecasts for real GDP growth in 2017, from2.8% to 3.5% on the back of stronger-than-expected Q1 data.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Rampant Consumer Will Drive Acceleration In Growth
The Lithuanian economy will post robust growth over our short-term outlook to 2019, buoyed by a strong consumer sector and
improving investment climate. Rising inflation will add some headwinds after the economy posted strong Q117 headline growth, but will
not suppress a notable acceleration in real GDP growth over the coming two years.
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 AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 GOODS IMPORTS IN 2015
TABLE: TOP 5 GOODS EXPORTS IN 2015
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
Improving Growth To Bring ECB Closer To A Gradual Exit
Economic and financial conditions in the eurozone have normalised over the past two-and-a-half years since the ECB announced the
launch of its expanded asset purchase programme in January 2015, and now it is clear that monetary policy has hit an inflexion point.
The withdrawal of monetary accommodation is set to be gradual and cautious, however.
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
EUR: Real Rate Differentials Do Not Support A Bull Market
The euro is rapidly approaching key resistance at USD1.15/EUR and despite the growing upside momentum we remain neutral from
a short-term perspective as the recent rally is not justified by the still-wide real yield spread between the US and Germany. From a
longer-term perspective, while the euro is slightly undervalued, the real yield differential is likely to remain strongly in favour of the dollar,
suggesting the euro will continue to edge weaker.
TABLE: BMI EUROZONE CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Lithuanian Economy To 2026
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. However, low debt levels and an attractive operating environment will help sustain investment growth,
maintaining low but stable economic activity throughout our long-term forecast period.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Contents
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Foreign Policy Status Quo Going Nowhere
Tensions with neighbouring Russia will continue to pose the largest threat to investor interests in Lithuania over the coming months.
While we do not expect an outright conflict between the two states, the threat of Russian military intervention will keep defence spending
a key priority of Lithuania's fiscal policy and encourage closer relations with the rest of the EU.
TABLE: POLITICAL OVERVIEW
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 EU and tense relations with neighbouring
Russia.
Chapter 4: Operational Risk
Operational Risk
TABLE: DEVELOPED STATES – LABOUR MARKET RISK INDEX
TABLE: DEVELOPED STATES – LOGISTICS RISK INDEX
TABLE: DEVELOPED STATES – CRIME AND SECURITY RISK INDEX
TABLE: DEVELOPED STATES – TRADE AND INVESTMENT RISK INDEX
Chapter 5: BMI Global Macro Outlook
Global Growth Solidifying, But 'Reflation' To Moderate
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: LITHUANIA – MACROECONOMIC DATA AND FORECASTS

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