Article

Lithuanias economy expanded at a faster rate in the second quarter than previously
estimated, driven by recovering consumption and the construction industry.
Gross domestic product grew 6.3 percent from the same three months of 2010, compared with
a preliminary estimate of 6.1 percent released on July 28, the Vilnius-based statistics
office said in an e-mailed statement today. Output rose a seasonally adjusted 0.4 percent from
the previous quarter.
Lithuanias economy, part of the Baltic region that suffered the worlds deepest recession in
2009, is growing at the second-fastest rate in the European Union after Estonia, driven by
foreign demand for its products and strengthening domestic consumption. The central bank
andSwedbank AB (SWEDA) both raised their 2011 GDP forecast for Lithuania in the past
month.
Unsurprisingly, private consumption continued to grow briskly, while export and import
growth slowed, but remained at good levels, Annika Lindblad, a Helsinki-based analyst with
Nordea Markets, said in an e-mailed note. We remain confident with our forecast of around 6
percent growth this year, as the domestic economy continues to gain strength and exports are
still doing well.
The yield on Lithuanias 10-year dollar bond rose 0.01 percentage point to 5.21 percent today.
Central Bank
The central bank raised its 2011 economic growth forecast to 6.2 percent this year, compared
with a May estimate of 5.6 percent. Lietuvos Bankas said on Aug. 11 that growth may slow to
4.8 percent in 2012. Swedbank raised its estimate to 6.3 percent on Aug. 23 from a previous
forecast of 4.2 percent.
The value created by the construction industry increased the most, expanding by 16.3 percent
in the second quarter from the same period last year, while output created by manufacturing
rose 9.3 percent, the statistics office said in todays report. Household spending grew 6.7
percent in the second quarter and capital formation jumped 23.1 percent, it said.
Gradually, the slowdown in global growth is also expected to weigh on Lithuania, and
combined with a higher base from this year, 2012 is expected to see slower growth as still-
fragile domestic demand is unlikely to be able to fill the gap from weaker export demand,
Lindblad said.
Retail Sales
Retail sales advanced 23.9 percent in the second quarter from a year earlier as consumers
spent more on cars, fuel and food. Vehicle sales tripled, driven by demand from neighboring
Belarus.
Exports, which make up about 65 percent of total economic output, grew 11 percent in the
second quarter from the previous three-month period. Industrial output, representing about 20
percent of the economy, increased 10.4 percent in the second quarter on the year.
Austerity measures adopted in Lithuania, Latvia and Estonia are a lesson for the European
periphery as it struggles through a sovereign-debt crisis, Fitch Ratings said on Aug. 25.
In 2011, their economies are recording fast rates of GDP growth, driven by a strong export
performance. External competiveness and confidence in their solvency have also been
restored, Fitch said in the report.
Neighboring Latvia grew 5.3 percent in the second quarter, while Estonia expanded at an 8.4
percent rate.
To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net
To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net.












Commentary
The article deals with a growth in Gross Domestic Product in Lithuania higher than what
previously estimated. The text informs us that the raise is led by a recovery in consumption
and the construction industry. In this commentary I will discuss the changes of the GDP.
The GDP is the market value of all final goods and services produced within a country in a
given period, in other words is a value for all the goods and services sold to consumer and it
doesnt take account intermediate transactions.
The GDP is formed by four components these are Consumption(C), which is all purchases of
final goods and services made by households. Investment (I) includes the spending of firms
on capital goods, new machines and spending in construction. Government spending (G) is all
the spending in goods and service made by the government, this could be creating a street or
employing people which work in the government. Finally net export, the difference between
total export and total import (X-M), exports are good created in a country, but sold to another
one and must be counted in the output of a country, on the other hand imports are good which
are bought by our country but produced in another one, as this involves domestic money
leaving the country it must be subtracted from the total output of our country.
We know that these components are the same of the Aggregate Demand, showing a relation
between AD and GDP. In fact the level of real GDP is given by the intersection between the
AD and the Short Run Aggregate Supply, also known as macroeconomic equilibrium.












Changes in the GDP, are given by shifts of the macroeconomic equilibrium, this is caused by
an increase or decrease in the AD or the SRAS, more precisely by their components.
From the text we know that in Lithuania there has been a recovering consumption[C] and
construction industry [I].
To understand why there have been changes in consumption or investment we need to study
the factors of the components and how their variation affects the component.
The two main factors of Consumption are the consumer confidence, the confidence
households have for their wealth in the future, and interest rate. This is the price of borrowing
money over a period of time, if the interest rate is high people will consume less as savings
and getting the interest rate is more attractive than consuming. Furthermore when a consumer
buys an expensive good, normally a loan is needed and if this is expensive, the consumers are
less willing and able to purchase the good.
The two main factors of Investment are Interest rate, which just like in the previous as this
increase, investment decreases, and the second facto is business confidence which is the
confidence firms have for the future, for instance if it is believed that a lot of consumer will
want the product, more investment will be done.
At this point, as we know that both consumption and investment increased, we can understand
that there must have been at least one of the factors which has changed.
Households and firms may believe that in the future they will have more money, which is, as
Lithuania is coming out from a recession, highly likely because people expect a better future
as the economy will boost, but a low interest rates policy could have the same affect, more
money to consume and more investments.
From online sources we can see that Lithuania interest rate has been low for 2010 (around
2%)
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, so this could explain the increase of consumption and investment leading to the increase
of the GDP.
From the text we learn that Lithuania economy is based mainly on Exports, around 65%, this
maintains growing rate of GDP, but if for some reason, such as stronger currency or cheaper
production in neighbouring country, exports decreases; Lithuanias GDP might fall
drastically. This shows us how an economy mainly based on one of the component of the
GDP can eventually cause big problems for whole the country. Therefore the increase in
Consumption and Investment will not only increase the GDP, but it might have the effect of
assuring the Lithuanians economy from being dependent on export, thus strengthening it.

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http://www.tradingeconomics.com/lithuania/interest-rate