N. Černiauskas: Favourable conditions projected for Lithuania’s growing exports
There have been increasingly more arguments claiming that exports recovered after the shocks in 2015. Export growth, similar to that before sanctions were imposed by Russia, is not only confirmed by the latest nominal data on the exports of goods, published in January, but also by the real data for 2016. However, investors still have a cautious view of the country’s political development after the election and weak growth in foreign demand; therefore, there is no rush to increase the production potential, necessary to achieve even stronger export development. Part of this uncertainty is due to external factors, which cannot be significantly influenced by Lithuania (e.g. Brexit); a favourable environment is, however, shaped by published information favourable to exports – this is the plan for the implementation of Lithuania’s new government programme, in line with the priorities identified by foreign investors.
Nerijus Černiauskas, Economist, Macroeconomics and Forecasting Division, Bank of Lithuania
In January, nominal exports of goods went up by 19.4 per cent over the year. The main reason behind this was rising prices in global markets, including prices of oil and agricultural production. Milk and dairy product prices rose in particular, which testifies to a recovery in this sector after import sanctions were imposed by Russia and encourages its development in Lithuania. However, exports have been growing not only due to price growth. The real industrial production data for January show that growth in output is over 16 per cent. The indicators of the real exports of agricultural production remain lower on account of a poorer harvest than in 2015.
Published annual real 2016 data show strong growth in the exports of services – 10 per cent over the year (GDP increased just over 2 per cent). While the largest share of the growth can be explained by the development of transportation activity (able to attract a labour force from abroad as well), other sectors have been growing as well. For example, exports of construction services boosted by about 10 per cent, while the construction sector as a whole has contracted in Lithuania.
In 2016, real exports of goods, excluding mineral products, grew quite markedly as well, especially given the changed re-export strategy. It is no news that due to the sanctions against Russia and the crisis in Russia Lithuanian carriers began moving goods between western EU countries. Since this route allows crossing Lithuania’s border less frequently, less data is reflected in the exports of goods statistics. Growth in the exports of goods of Lithuanian origin, which account for almost 60 per cent of total exports of goods, could be increased by intensifying investment in the development of production. However, weak growth in foreign demand and high uncertainty in foreign countries interfere with assuming investment risk.
The sentiment of foreign investors is affected by endless questions about Brexit and future EU development, which may be complicated due to the outcome of pending elections in the EU. The policy conducted by President Donald Trump also raises great uncertainty in the US market. There is a lot of uncertainty in the Eastern countries as well. But in Lithuania, the expectations of foreign investors are likely to be satisfied by the intentions of the recently formed Lithuanian government to immediately bring more transparency to labour regulations and ensure competitive labour supply. Amendments to the Labour Code are planned for already the second quarter of this year; about 1/5 of total planned tasks revolve around changing the education system, concrete work on how to attract and keep talent in Lithuania are identified. The aim is also to attract two large high-value-added manufacturing plants from abroad and encourage the activities of start-ups – future exporters.
This increases clarity, but some answers are still needed on how the planned works will be financed, which of the previously planned works will be abandoned. There is no doubt that wages in Lithuania will grow. Therefore, exporters themselves will have to automate processes, produce high-value-added products, look for solvent customers and retain them in order to remain competitive.