Our comprehensive assessment of Lithuania's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Lithuania, as well as the latest industry developments that could impact Lithuania's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Lithuania before your competitors.
Lithuania Country Risk
The Lithuanian government will maintain its foreign and domestic policy course in 2015-2016, namely it will continue to ramp up fiscal expenditure and maintain its hardline stance towards Russia.
We have revised down our forecast for real GDP growth for Lithuania in 2015 and 2016 as weaker demand from Russia will weigh on export growth. Although external headwinds will not leave domestic demand unscathed, domestic demand will remain a key driver of growth in the coming quarters.
We project modest fiscal slippage for Lithuania in 2015 on the back of elevated expenditure and weaker public revenues due to subdued external demand. While the government is likely to finance the wider deficit through the issuance of new debt, this will not damage Lithuania's sovereign risk profile as ECB QE will keep a lid on borrowing costs,...
Lithuania Industry Coverage (9)
2014 has proved a very positive year for new passenger sales within Lithuania. Over the first nine months of the year, passenger car (PC) sales were up by 24.5% year-on-year (y-o-y), at 11,071 units, according to figures from the European Auto Manufacturers Association (ACEA).
However, on the commercial vehicle side, the sales performance has been less encouraging. 8M14 figures from ACEA show a total of 1,328 light commercial vehicles (LCVs) sold in country, with a further 1,431 medium and heavy commercial vehicles sold, plus a further 164 buses, for a total of 2,923 units sold year-to-date, down 8.2% y-o-y.
Adding the 2,923 CV units to the 9,795 PCs sold over 8M14 makes for a total new vehicle market of 12,718 units. On current sales trends, this leaves the Lithuanian new vehicle sales market on target to hit BMI's forecast of 19,128 units for the full year.
Food & Drink
Lithuania Food & Drink
While a breakdown of the Q314 GDP figure is not available at the time of writing, we believe domestic demand has also suffered due to the significance of the external sector for Lithuania's small, open economy. Lending support to our view has been a series of high-frequency economic indicators. Industrial production contracted by 0.5% y-o-y in September on a workday-adjusted basis. While pointing to growing pressure on private consumption, the modest abatement in retail trade growth is also reflective of the resilience of the household sector, which has been bolstered by falling unemployment and rising wages.
Headline Industry Data (local currency)
Per capita food consumption growth in 2014: +2.9%; compound annual growth rate (CAGR) to 2018: +3.7%
Alcoholic drinks sales value growth in 2014: +2.0%; CAGR to 2018: +4.6%
Lithuania Freight Transport
The escalating trade war between Russia and the EU prompted us to revise down our forecast for growth in Lithuania for 2014. Growth will accelerate in 2015, as geopolitical tensions in the region disperse, trade restrictions get lifted, and overall external demand improves. However, with the situation in the region far from certain, Lithuania's freight industry may well bear the brunt of any further tensions should exports drop as a result.
Our expectation for a slowdown in Lithuanian economic growth appears to be materialising. The main factor behind this trend is softer external demand on the back of the Ukraine crisis (see 'Growth Outlook Sours' May 20 2014). However, escalating trade wars between Russia and the EU exacerbated the slowdown, prompting us to revise down our 2014 growth forecast - to 2.6% from 2.9% previously.
According to the Bank of...
BMI View: The deteriorating relations between Russia and the EU are proving to have a detrimental effect on Lithuanian economic momentum - weak demand from Russia and elsewhere, and poor investment confidence. However, the economy is forecast to strengthen beyond 2015 as the external situation improves, and while the infrastructure will ultimately stagnate over the next decade, there are still opportunities in construction, and EU-funded transport and energy developments.
In the long term, despite a slowing and moderated growth picture, we do not expect any major fluctuations, and while steadiness may not spell a market with abundant opportunity, investors can be assured of Lithuania's position as an attractive investment destination, owing to its EU membership. Lithuania's fiscal deficit converging with...
BMI View: Strong multi-national companies that can easily deal with the rising capital and regulatory requirements associated with the EU's Solvency II regime completely dominate both the non-life segment and the life segment of Lithuania's insurance sector. In the life segment, those households who can afford to save have been attracted to single premium and unit-linked products offered by the insurers. These households should continue to increase their demand for life insurance over the course of the forecast period. The life insurers have the capacity to develop and distribute attractive products. Changes in the competitive landscape of the non-life segment mean that the local subsidiaries of Polish major PZU (Lietuvos Draudimas) and Norway's Gjensidige Baltic...
Lithuania Medical Devices
BMI Industry View: Lithuania's medical device market is returning to growth, having suffered in line with the global economic crisis in 2009 and 2010. The past three years have seen strong growth, and in 2013, the Lithuanian medical device market was valued at an estimated USD257.4mn, or US85 per capita.
Headline Industry Forecasts
In 2013, the Lithuanian medical device market was valued at an estimated USD257.4mn, or USD85 per capita. After experiencing a contraction in 2009 in line with the global financial crisis, it returned to growth over the 2011-2013 period. By 2018, BMI forecasts the market will...
Pharmaceuticals & Healthcare
Lithuania Pharmaceuticals & Healthcare
BMI View: The deteriorating macro outlook for Russia will impact Lithuania's economy, with negative effects on fiscal planning and therefore the pharmaceutical and healthcare sectors. However, the centre-left government's partial reversal of austerity measures, raising of minimum wages and boosts to unemployment benefits will provide some relief in the short term from external factors.
Headline Expenditure Projections
Pharmaceuticals: EUR600mn (USD810mn) in 2014 to EUR630mn(USD691mn) in 2015; +4.4% in local currency terms and -14.3% in US dollar terms.
Healthcare: EUR2.40bn (USD3.1bn) in 2014 to EUR2.4bn (USD2.6bn) in 2015; +4.2% in local currency...
BMI View: Lithuania's mobile market recorded negative growth in 2013 and the for first nine months of 2014, with incumbent Omnitel finally ceding its lead position to Tele2. The mobile market is saturated and as operators move customers to more valuable postpaid plans, so large numbers of inactive prepaid accounts are being eliminated. In Omnitel's case, this has yielded stronger ARPU figures and uncovered underlying positive ARPU growth that had previously not been visible. Consumers have become used to very low monthly mobile bills,...
BMI View: Overall we maintain our outlooks for the Baltic states' tourism sectors over 2015. Although the countries stand to lose out due to the ongoing issues (both economic and political) arising from the Russia-Ukraine tensions, and this will constrain arrivals from these countries, we believe that these losses will largely be mitigated by increased inter-regional tourism within the three Baltic states, as well as from other European countries which increasingly view the Baltic region as a more stable alternative to Russia and Ukraine. In particular we feel that Lithuania's tourism sector could see substantial growth over the longer term if its bid to join the euro is successful, as it will facilitate multilateral tourist traffic from and to the eurozone.
One of the main developments over 2014 has been the advancement of the proposal to include...