Thursday

27th Feb 2020

Lithuanian economy contracts by 12 percent

New data released by Lithuania's statistics office on Tuesday (28 April) show the country's economy shrunk by 12.6 percent in the first quarter of this year compared to the same period in 2008.

The quarterly contraction is thought to be the largest experienced by any country since the start of the financial crisis and certainly the worst in the small Baltic state since recording began in 1995.

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  • The World Bank says eastern Europe as been hit the hardest by the global recession (Photo: European Commission)

Falling exports and industrial output and also the global credit squeeze are at the root of the problem says the statistics office.

"We hope that next year, we shall have a much lower gross domestic product decrease or even stability in GDP, and then we are forecasting that we should return back to GDP growth in 2011," said the country's prime minister, Andrius Kubilius.

But the news adds to the woes of the new centre-right government, which has already faced protests over austerity measures and raises the prospect of a loan application being sent to the International Monetary Fund.

Neighbouring country Latvia negotiated a deal with the international lender for €7.5 billion towards the end of last year.

The new figures mark a huge turn around in Lithuania's fortunes in recent times.

Growth figures for 2007 were 8.9 percent, but they slowed to thre percent last year on the back of diminishing construction and the retail activity.

The statistics office now predicts a contraction of 10.5 percent for 2009 as a whole.

Euro restrictions

The World Bank says eastern Europe is likely to have been the hardest hit region by the global recession, with Estonia and Latvia also predicting double-digit contractions for their economies this year.

The three countries, members of the EU since 2004, are also keen to join the eurozone in the future and have so far opted to maintain their currencies pegs with the euro.

This has denied policymakers a powerful tool to improve the economy's competitiveness.

The Lithuanian government has also made great efforts to keep its budget deficit below three percent of GDP this year, a requirement for both applicant and member countries of the currency union.

Despite the substantial public spending cuts made this month, the government is set to announce a new package of cuts in June as it struggles to remain below the three percent mark.

More records in Ireland

On the other side of the EU, new figures released by the Irish government's research institute also estimate historic falls in growth.

The institute predicts the gross national product will contract 9.2 percent this year.

"Our forecasts suggest that Ireland's economy will contract by around 14 percent over the three years 2008 to 2010. By historic and international standards this is a truly dramatic development," says the report published on Wednesday.

Like Lithuania, the small, open economy has suffered badly from the fall in global consumption and is set to see unemployment average 292,220 people this year or 13.2 per cent.

This figure could rise to 16.8 percent in 2010, restarting a tradition amongst Irish citizens of emigrating to other countries in search of work.

Some 30,000 people are predicted to leave this year alone.

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