Analytics, Economics, Lithuania

The economy shrank a seasonally adjusted 1.4% from the previous three-month period, the second consecutive quarter-on- quarter decline. Lithuania is facing its worst recession since 1993 after a credit boom ended and the global economic crisis cut demand for exports. The Government, with limited scope to borrow abroad because of the credit freeze, cut spending and wages in January, which led to protests and riots. More austerity steps including spending cuts will be implemented in April, amounting to about 3% of gross domestic product (GDP), writes Bloomberg/ELTA.

Countries across Eastern Europe have been hit by the crisis. Baltic neighbors Latvia and Estonia, once two of the European Union's fastest growing economies, are now the two worst performers, contracting 10.3% and 9.7% respectively. Much of the growth in Lithuania was based on a real estate boom which has gone bust with the lack of credit because of the crisis. The construction industry faltered the most in the fourth quarter, shrinking 10.6% on the year, the statistics office said. The first quarter will probably see a contraction of as much as 9% annually, a median estimate by five economists surveyed by Bloomberg showed. The economy grew 9.4% in the first quarter last year.

"First-quarter indicators may show a worse situation than the reality because of a high base last year," said Jekaterina Rojaka, economist of DnB Nord Bankas. "GDP will shrink in double digits, but full-year results should be somewhat better." The Finance Ministry said yesterday the economy will probably contract 10.5% this year as the impact of the crisis intensifies. GDP will shrink 2.6% in 2010, the ministry added.