EUOBSERVER / BRUSSELS – Revised data released by the Lithuanian statistics office on Thursday (28 May) points to a sharper economic contraction in the first quarter of this year than previously estimated, but the country's economy minister says things are improving.
"Recovery is not far away," Dainius Kreivys told EUobserver in an interview in Brussels. "We already have some stabilisation signs, including in the sector of exports," he said.
The small Baltic country's open economy has experienced a roller-coaster ride in recent times, recording impressive growth of 8.9 percent GDP in 2007, but set for a contraction of 11 percent this year, according to statistics produced by the European Commission earlier this month.
Like other EU member states, the Lithuanian government now finds itself caught between the conflicting needs of reducing an escalating budget deficit and stimulating a lagging economy.
And while the former is clearly important, Mr Kreivys stresses that the country's economy cannot simply be left to flounder.
"We are not just sitting and waiting for other economies to recover," says Mr Kreivys, who points out that the country's low level of debt as a percentage of GDP – only 15.6 percent in 2008 – leaves the government with more room to manoeuvre than others.
To boost growth, the Lithuanian government launched a stimulus plan this year equal to approximately 5 percent of the country's GDP, significantly higher than many other European states.
Of this, roughly 2 percent of GDP will go into a cash pool designed to increase market liquidity and help struggling businesses that are currently starved of credit.
The rest will go on major infrastructural developments and building renovation projects, helping to ease the construction sector's downturn that, together with falling exports, has plunged the country into its worst recession since the break up of the Soviet Union.
Construction and real estate
"The main wobbles developed in the real estate market," says Mr Kreivys when speaking about the causes of the country's recession.
Almost unlimited credit provided by western banks, primarily Swedish, overheated the construction and real estate sectors in the Baltic state in recent years.
Since the onset of the credit crunch in 2007 however, property prices in the country's capital Vilnius have fallen by up to 50 percent, compared to 7 percent in neighbouring Poland.
"We had such a big drop because Scandinavian banks cut the refinancing of the sector," says Mr Kreivys.
Real challenges remain
As well as getting the country's construction sector back on its feet, other real challenges remain.
Thursday's revised data from the national statistics office show the economy contracted by 13.6 percent of GDP in the first quarter of this year when compared the same period in 2008, a downward revision from the previous estimate of 12.6 percent.
While the government is currently pausing to see what the global economy does, Mr Kreivys does not rule out the need for further budget cuts later in the coming months, unlikely to prove popular with citizens that have already staged violent protests once this year.
Added to this, recent rumours suggested that Lithuania might be forced to follow its neighbour, Latvia, and go cap-in-hand to the International Monetary Fund. Mr Kreivys is adamant this is not the case, however. "There is no need," he says.
There is also the question of how well the country's new president-elect, Dalia Grybauskaite, who served as budget commissioner in Brussels until recently, will work with the government following her inauguration this summer.
"I think that having such a strong president and a strong government will help our country to recover faster," says Mr Kreivys.