Outlook of Lithuanian economy from 2008 until 2012 and looking forward. Lithuania emerged from the deep recession more balanced and effective, with lower private sector financial leverage and tangible competitive advantages. However there remain areas which require more reforms and improvements - labour market flexibility, efficiency of procurement process, better functioning financial markets and overall better political environment. This Outlook was presented to Lithuanian Investment Advisory Council (http://www.iac.lt/)

1. Lithuanian economy 2008-2012
Nerijus Mačiulis, Chief economist, Swedbank
© Swedbank

2. The effects of global financial crisis were severe, but
reforms and adjustments were quick and efficient
GDP index, peak=0
2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1
0.0
-5.4
-5.0
-7.3
-10.0
-14.3
-15.0 -16.2
-19.1
-20.0
-25.0 -23.9
Euro zone Estonia Latvia Lithuania
-30.0
Source: Eurostat and Swedbank forecasts
© Swedbank

3. Manufacturing at new highs
Growth in manufacturing, sa, 3 month moving average, Janaury 2008=100
110
105
100
95
Lithuania
90 Latv ia
Estija
85 Sweden
Euro area
80
75
70
65
2008 2009 2010 2011 2012
Source: Reuters Ecowin, Statistics Lithuania
© Swedbank

4. Example of successful internal devaluation –
adjustment was achieved without currency devaluation
Real unit labour costs, index 2000=100
120
115
110 Czech Republic
Germany
105
Estonia
100 Greece
France
95 Latvia
Lithuania
90
85
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Source: Eurostat
© Swedbank

5. Trade surplus at a record high
Current Account Balance, % of GDP
15%
10%
4.8%
5%
3.1%
0%
-5%
-10%
-15%
-20%
-25%
2007 2008 2009 2010 2011 2012
Balance of goods and serv ices, % of GDP
Balance of goods, % of GDP
Balance of current account, % of GDP
Source: Bank of Lithuania, Swedbank
© Swedbank

6. GDP growth has probably bottomed out in the
second quarter of this year
Contributions to GDP grow th Contributions to GDP Grow th
15% 8% 5.9%
5.9% 6.5% 4.4% 6%
10% 6.7% 3.9% 2.2% 4.1% 4.5%
4.8% 3.3%
5% 4% 1.4%
0.9% 0.8%
0% 2%
-0.9% 0%
-5%
-10% -2%
-15% -4%
2010 2011 2012 2010 2011 2012f 2013f 2014f
Household consumption Gov ernment consumption Household consumption Gov ernment consumptio
Inv estment (excl.inv ent.) Inv entories Inv estment (excl.inv ent.) Inv entories
Net export GDP growth Net export GDP growth
Source: Statistics Lithuania, Swedbank Sources: SL, Swedbank
© Swedbank

7. Exports boom despite recession in euro area
Export of goods and services, LTL m illions
8000 4000
7000 3500 Exports of goods
(ls)
6000 3000
5000 2500
Exports of goods
4000 2000 produced in
Lithuania (ls)
3000 1500
2000 1000 Exports of
serv ices (rs)
1000 500
0 0
2007 2008 2009 2010 2011 2012
Sources: Statistics Lithuania, Bank of Lithuania
© Swedbank

8. Confidence was increasing throughout the year,
but recently dropped, mainly due to
uncertainties in euro area
Confidence Indicators
40
Overall sentiment
20
Industry (40%)
0 Construction (5%)
Retail trade (5%)
-20
Services (30%)
-40 Consumer (20%)
-60
-80
2010 2011 2012
Source: Statistics Lithuania
© Swedbank

9. Unemployment at the lowest level since the
beginning of 2009
Registered unemployment and vacancies
40% 16% 35
35%
15% 30
30%
25% 14% 25
20%
13% 20
15% 13.3%
10% 12% 15
5%
11% 10
0%
2007 2008 2009 2010 2011 2012 10% 5
Unemployment rate 9% 0
The youth (aged 15–24) unemployment rate 2010 2011 2012
Long-term unemployment rate Registered unemploy ment Registered v acancies thous. (rs)
Source: Statistics Lithuania
Source: Lithuanian Labour Exchange
© Swedbank

10. One of the fastest declines of unemployment in EU
12 30
24.7
23.5
10 25
8 20
15.9 15.5
14.8
13.3 13.7
6 12.2 15
10.9 10.6
10.1 10.1 10 10.1
8.2 7.6 7.6 8.2 8.1 8
4 6.7 7.1 7.2 10
5.5 6.1 5.3 5.1
2 5
0 0
UK
Finland
Italy*
Estonia
Lithuania
Romania
Bulgaria
Latvia
Hungary
United
Poland
Spain
France
Malta
Slovenia
Slovakia
Portugal
Belgium
Czech
States
Cyprus
Ireland
Netherlands
Denmark
Greece
Sweden
Luxembourg
Germany
-2 -5
-4 -10
Change in unemployment in 2012 Q2 compared with 2011 Q1 Unemployment rate in 2012 Q2 (RS)
* Last observation for Italy 2012 Q1 Source: Eurostat, Sw edbank
© Swedbank

11. Public finances continue to improve,
debt will peak at 40% of GDP this year
General Governm ent Finances, % of GDP
0% 48%
-0.5%-0.4%
-2% -1.0% -1.0% 40%
-1.3%-1.5%
-2.0%
-4% -3.0% 32%
-3.3%
-6% 24%
-5.5%
-8% 16%
-7.2%
-10% 8%
-9.4%
-12% 0%
2003 2005 2007 2009 2011 2013f
Debt (rs) Budget position (ls)
Source: Lithuanian MoF, Swedbank calculation
© Swedbank

12. Private sector has deleveraged significantly
Total debt, % GDP
120%
100%
19.8% 4.5%
44.6%
80% 6.4%
15.5% 41.5% 44.2%
60% 42.9% 35.1%
31.4%
31.9%
40%
24.9%
46.8% 40.9%
20% 39.8%
26.9% 31.5%
23.3%
0%
2008 1H 2012 2008 1H 2012 2008 1H 2012
Lithuania Latvia Estonia
Households Non-financial corporations Public sector (1Q 2012)
© Swedbank

13. The confidence of financial markets
is at all time high
10 year CDS
800
Lithuania
750 Italy
700 Germany
650 United States
600
550
500
450
400
350
300
250
200
150
100
50
0
08 09 10 11 12
© Swedbank
Source: Reuters EcoWin

14. Investments in fixed tangible assets stagnate
FDI inflow in Lithuania, m LTL Investm ent in fixed tangible assets, % GDP
2500 10 30% 60%
26%
2000 5.9 6.7 8 20%
19% 20% 18% 17% 18%
3.8 2.73.9 4.3 3.8 20% 40%
1500 3.6 6 14% 13%
4.1 0.7 3.6 2.0 11% 12% 11% 12% 12% 12%
3.5 9% 10%
1000 4 10% 7% 20%
500 2
-3.2 0 0% 0%
0
-500 0.7 -2 -10% -20%
-1000 -1.4 -4
-3.1 -2.5 -20% -40%
-1500 -6
-2000 -8 -30% -60%
-2500 -10 2008 2009 2010 2011 2012
2008 2009 2010 2011 2012 Construction, % GDP Equipment, machinery % GDP
Equity and other capitals Reinv ested earnings Other, % GDP Inv estment, y oy (rs)
FDI, % of GDP (rs) Total inv estment, % GDP Source: Statistics Lithuania, Swedbank
Source: Bank of Lithuania, Swedbank calculations
© Swedbank

15. Global competitiveness report: advantages
0
Malaria cases
Business impact of malaria
5 Trade tariffs
Flexibility of w age
Women in labour force
Top 10 determination
10
WEF GCR ranking
Mobile telephone
HIV prevalance
subscriptions
Tertiary education Quality of math and
15
enrollment science education Quality of railroad
infrastructure Business costs of
20 Top 20
Internet access Imports as percentage terrorism
Business impact of FDI and technology
in schools of GDP
HIV/AIDS Pay and productivity transfer
25 University-industry
Degree of customer
Quality of primary collaboration in R&D
orientation
education
30 Int'l Internet bandw idth
Top 30
35
Higher education Goods market Infrastructure
Health and primary education Labour market Institutions
and training efficiency
efficiency Technological
Source: WEF Global competitiv eness report 2012-2013 readiness Innovation
© Swedbank

16. Global competitiveness report: disadvantages
94
Available airline seat
Worst 50
99 Effectiveness of anti- Gov't procurement of
monopoly policy advanced tech products
104
Burden of geovernment Ease of access to loans
Worst 40
109 regulation Redundancy costs
WEF GCR ranking
Government budget Buyer sophistication
114 Public trust in politicians balance State of cluster
Brain drain development
Worst 30
119 Business impact of rules
Hiring and firing practices on FDI
124
Worst 20 Extent and effect of
129
taxation
134
Worst 10
139
144
Macroeconomic Financial Business
Institutions Labour market efficiency Goods market efficiency Innovation
environment market sophistication
developmen Infrastructure
Source: WEF Global competitiv eness report 2012-2013
© Swedbank

17. Thank you!
To subscribe to our reports:
http://www.swedbank-research.com
© Swedbank