Although the latest macroeconomic indices increase skepticism, economy analysts calm that the Baltic countries have showed rapid but disproportionate developed over the last three years, therefore the fall in economies is also higher. The economy potential of the Baltic countries has not disappeared and will show their potential right after the recovery of global markets.

Business and industry competitiveness remains high even under the hardest economic circumstances and some tendencies induce additional positive impulses. The cheaper labor force and its high expertise, decrease in prices of raw materials, favorable conditions for Green field investment (industrial parks, free economic zones), promotion of innovations (High-tech parks, valleys of science and business), highly developed public facilities, declining bureaucracy and  favorable conditions for business establishment are all considered to be the keys for competitiveness of Lithuania.

Some experts believe that Lithuania with its relatively small market area is attractive to foreign investors who have interest not only in the markets of the Baltic and foreign countries but also in the area of Russia and CIS. Not only due to its geographic location, but also due to clearly perceived cultural aspect and more resilient and still existing close relations with the countries of the territory of the former Soviet Union.  

European Economies with Minus Sign

Jonas Markelevičius, temporary manager of the Department of Statistics explains that gross domestic product (GDP) of almost all European countries declined in the first quarter of this year. The difference is only in the extent of decline – GDP in the old Western European countries declined slower than that of the Baltic States.
In the first quarter of this year as opposed to 2008, GDP dropped by 13.6 per cent in Lithuania. The drop in Latvia’s and Estonia’s GDP is even higher – 18.6 and 15.6 per cent respectively.
In the first quarter of this year, the GDP of the old member states of EU decreased by 7 per cent in Germany, 6 per cent in Italy, 3 per cent in France, more than 6 per cent in Romania, more that 5 percent in Slovakia and more than 6 percent in Sweden. The economy of Norway dropped by more than 1 per cent. These numbers are provided in the Eurostat database. 

"According to today’s data, almost all economies of EU are with a sign of minus, except for Cyprus with recorder 1.5 per cent of growth and Poland (1.9 per cent growth). The growth in Cyprus was probably influenced by unique economics with the major share constituting of service sector. It is more complex to find economic explanations for the growth Poland.  The growth of Poland was not high in previous periods as well, the base was small and probably the effect is the same as with deflation in Lithuania and by the preparation to adopt Euro we started to calculate inflation according to Maastricht criteria”, says J. Markelevičius without finding more arguments for explanation of some European economics.

Economist Violeta Klyvienė, senior analyst of “Danske” bank reveals the reasons of high competitiveness of Poland. According to collocutor, the economy in Poland shows miracles and this is probably the only country that has not actually experienced recession of negative growth. “This case can be logically explained by the features of Poland economy structure. This was the economy orientated to export, although many countries targeted to export suffered recession, the export structure of Poland economy was more favorable under the condition of crisis and remained rather competitive. The recent decline of zloty was also one of the factors that could positively affect development of export and suspend free decline that was a surprise not only in the Baltic States, but also in many other economies. On the other hand, Poland managed to attract impressive volumes of foreign direct investment during the boom. It demonstrates that investment to production and industry may be a good vaccine against international crises and fluctuations.  The economy of Poland has not experienced such a massive credit boom, real estate fever, the economy development has been much more stable and has not been based on internal demand and prosperity of construction sector only”, alleges V. Klyvienė.

In Increase of Unemployment Reduces Expenses to Labour Force

During the first quarter of this year, Lithuania was distinguished by average annual inflation amounting to 9 percent. This index has also remains high in other Baltic countries: more than 11 percent in Latvia and 6.8 percent in Estonia. "However, it should be noted that we watch negative inflation in Lithuania during several recent months, deflation processes occur when prices decrease in general. Last month we announced that general decrease in prices reached 0.2 per cent per one month. According to our short-term forecasts, the tendencies will remain the same in June”, comments J. Markelevičius, temporary manager of the Department of Statistics.  
Level of unemployment reached nearly 12 percent during the first quarter of this year. In the same period of 2008, the unemployment amounted to nearly 5 per cent. "The level of unemployment increase very rapidly and it causes some social problems. Of course, unemployment should be of a specific level in order to establish conditions for competition in the labour market, however it should not become a social issue”, says the specialist.
In the first quarter of 2009, opposed to the fourth quarter of 2008, the average wage of employees decreased by 2.4 per cent.  The biggest decrease was observed in the sectors of mining and quarrying (by 11.0 %), construction (by 7.9 %) and manufacturing (by 5.8 %).

According to statistics, the average wage declined by 5.4 per cent and reached more than 2000 Litas in the first quarter of 2009. However, the representatives of trade-unions allege that decrease of wages is several times higher and resent the aim of employers to liberalize labor market. The managers of business organizations are happy by reducing costs for labour force and consider it as country’s competitive advantage.

The Economy is Rescued by Rising Expectation of Consumers

According to Kestas Petrutis, Managing Director of Business Consulting company “VIR FULMINANS”, Latvia is in the most complex situation of all Baltic States. The situation in Lithuania is at least partially saved by more diversified industry structure and export, therefore economy of Lithuania should recover outright with the strengthening of Euro zone.

"The recovery of economy in Euro zone is mostly related to the activity of export markets. The structure of Euro zone export is more favorable to the old members of EU than to Baltic States. More than fifth of export constitutes of export to the region of Asia that starts to recover relatively fast, especially China. This country has never suffered an actual economy recession. This is an important factor that increases expectations that Euro zone may recover and recover relatively rapid this year. This could be considered as the good news for Lithuania, because economies of Euro zone are important to us being the main export partners”, highlights K.Petrutis.

The collocutor thinks that Russian market related to global oil prices is strategically important to the Baltic States. "Not many forecast significant recovery in Russia neither this nor next year. It can be stated that external environment remains unfavorable to Lithuania and this is one of the most important factors for the forecasts of many analysts to be shifted to the worse side. However, there are some recovery indications, i.e., indices of consumer trust are starting to rise from the bottom. I think this is related to inflation indices and lower consumer prices that stimulate consumption”, notices the financier Kestas Petrutis.

Foreign Investment does not Pass Lithuania

Even under “critical” moods and economy decline foreign investors do not pass Lithuania. Based on provisional data of the Department of Statistics as of January 1st, 2009, foreign direct investment (FDI) made 31484.6 million Litas or by  11.3 per cent less than on January 1st, 2008 (LTL 35503.9 million).

According to statistics, the bulk of investment fell within investors from Sweden– 5298.5 million Litas (16.8 per cent of the total FDI), Germany – 3169.8 million Litas(10.1 per cent), Denmark – 2753.3 million Litas (8.7 per cent), Estonia – 2397.0 million Litas (7.6 per cent), the Netherlands – 2114.0 million Litas (6.7 per cent), Latvia – 1945.7 million Litas (6.2 per cent), Poland – 1853.1 million Litas (5.9 per cent), Finland – 1749.3 million Litas (5.6 per cent), Russia – 1664.0 million Litas (5.3 per cent), Norway – 1242.0 million Litas (3.9 per cent).

In the previous year, the most rapid growth was observed in the Latvian, Dutch, Swedish and Norwegian FDI. Direct investment from EU 27 countries made LTL 25569.1 million (81.2 per cent), from CIS countries – LTL 1851.7 million (5.9 per cent) of the total FDI.

Lithuanians made an investment amounting to LTL 4877.0 million in foreign countries as of January 1st and annual investment flow increased by 31.7 percent. The major number of Lithuanian companies is located in Latvia, Russia, Poland, Ukraine, and Bulgaria.

Lithuania is Qualified better in Global Finance Markets

Some positive tendencies in global finance markets are also affecting Lithuania. As National press service reports, according to the index provided by the monitoring system of "Bloomberg" finance market - Credit Default Swap, CDS – Lithuania’s financial situation is under improvement for already three months in a row. This index reflects the attitude of investors to country’s ability to pay debts during a specified period of time.

The index reflecting foreign investor’s evaluation and opinion about the likelihood of country’s insolvency is directly related to costs of borrowing from global finance markets. The higher the CDS index, the more expensive it is for country to borrow. CDS index of Lithuania as well as of almost all Middle and Eastern European countries for the period of 5 years increased in September and October of the last year. In September, 2008, Lithuania’s CDS index was 188.3, and after a month, in October, - 631.7. Later on, Lithuania’s CDS index variably increased and reached 849.9 in February of 2009. Since then, Lithuania’s CDS coherently decreased and reached 389.98 in June.