What is the outlook for the Lithuanian economy in 2014? Drawing on 200 business interviews in Lithuania as well as IMF and EIU data this report reveals that business growth prospects in the economy are relatively helpful and leaders still want to join the euro.

1. Focus on: Lithuania
Grant Thornton International Business Report 2013

2. Focus on: Lithuania
Introduction
200
business
interviews
Lithuania is a country is an eastern European economy
of around 3m people. In 2012, its GDP was approximately
US$42bn, making it the 82nd largest economy in the world.
It is the largest and most populous of the three Baltic states
and accounts for 46% of the region’s total GDP.
Drawing on data sources such as the Economist Intelligence
Unit (EIU), the International Monetary Fund (IMF) and the
Grant Thornton International Business Report (IBR), this short
report considers the outlook for the economy, including the
expectations of 200 businesses interviewed in Lithuania,
and more than 12,500 globally, over the past 12 months.
Genadijus Makuševas
Grant Thornton Rimess UAB
Managing partner
T +370 5 212 7856
E genadijus.makusevas@lt.gt.com
W www.grantthornton.lt
US$42bn
gross domestic product
3 million inhabitants
Focus on: Lithuania 2

3. Focus on: Lithuania
Economy
Economy
slowed to
The pace of expansion in the Lithuanian economy slowed to 3.6% in
2012, down from 5.9% in 2011, as the eurozone sovereign debt crisis
dampened regional growth prospects.
The government is still aiming to follow
neighbours Estonia and Latvia into the
single currency in 2015 and is expected to
comfortably meet accession criteria for
the deficit, public debt and exchange rate
but this will require significant fiscal
consolidation which will rub against
15.0%
calls for more budget target flexibility
that the ruling party campaigned on in
10.0%
2012. Russia and Germany are key trading
13.2%
partners. Refined petroleum account
9.1%
for 22% of exports.
3.6%
Export markets
in 2012
15.0%
15.0%
15.0%
Russia
Germany
46.4%
Latvia
Poland
Netherlands
Other
10.0%
13.2%
9.1%
13.0%
46.4%
6.4%
12.0% 5.9%
4.4%
12.0%
4.4%
6.4%
5.9%
13.0%
9.2%
9.2%
4
Key indicators
• the economy expanded by 2% year-onyear in Q3, slightly down on growth of
3.5% and 3.8% in the previous two
quarters of 2013 respectively
• real wages rose for the first time since
the financial crisis in Q1 and Q2-2013,
helping to boost private consumption by
4.9% year-on-year in the second quarter
• the unemployment rate fell to 11.9%
in September, the lowest level since
Q4-2008, and down from 13% a year
earlier, although net migration is still
negative and more than 250,000 jobs
have been lost since the financial crisis
15.0%
• exports climbed by 16.0% in Q3 from
the same period 12 months previously,
15.0%
up from 10.6% in Q2; imports grew 10.0%
by
11.5% in Q3, down from 15.9% in the
13.2%
9.1%
10.0%
previous quarter
13.2%
• inflation was up by 0.4% in September
9.1%
6.4%
from the same period in 2012, with a
0.7% rise recorded since August5.9%
6.4%
5.9%
Import sources 4
3
15.0%
15.0%
Germany
Russia
Poland
Latvia
Netherlands
Other
3
13.0%
46.4%
13.0%
46.4%
2
12.0%
9.2%
12.0%
4.4%
2
1
9.2%
4.4%
Source: Observatory of Economic Complexity (2013)
1
4
0
4
0
2012
3
2012
2013
2014
2015
2013
Focus on: Lithuania 3
2016
2017
20

4. 2%
Focus on: Lithuania
15.0%
5.9%
10.0%
13.2%
13.0%
46.4%
46.4%
4
13.0%
4
3
2
1
12.0%
15.0%
9.2%
3
2
1
2013
2014
0
2012
2013
2014
Source: Economist Intelligence Unit (2013)
2015
2016
2017
Real GDP growth (%)
Consumer price inflation (av; %)
3.2%
2015
in 2013
Growth and inflation forecasts
2012
forecast growth
9.2%
0
3.7%
The government is targeting a fiscal
deficit of 1.9% of GDP in 2014, well
within the level necessary for eurozone
entry. Tax revenues are expected to
increase by 5.1% as rising wages and
falling unemployment boost returns
from income and consumption. Maastricht
criteria for eurozone entry should easily be
met and with inflation falling, the
government is expected to ask in early
2014 to be admitted into the single
currency. The budget balance is expected
to decline from -3.3% of GDP in 2012
to -1.3% in 2016.
12.0%
4.4%
Stronger than expected growth in Q3 of 2.0% means forecast growth of
9.1%
2.9% across 2013 is likely to be beaten, with the government forecasting
6.4%
expansion of 3.7%. Private consumption has picked up in recent months
5.9%
4.4%
as rising real wages and consumer confidence coupled with falling
unemployment boosts spending. This trend is expected to continue
on into 2014 with real GDP growth of 3.2% currently forecast, rising
to 3.4% in 2015.
Wage growth has been supported by
the 18% nominal increase in public
sector wages for the lowest paid but
private sector salaries (3.8% vs 2.2%)
actually rose faster in Q2 suggesting a
more sustainable, less fiscally draining,
outlook for earnings. Rising domestic
demand will boost imports but the external
sector is likely to remain a net contributor
to GDP growth next year (0.4%) as
internal demand in Lithuania’s major
trading partners accelerates even faster.
10.0%
15.0%
9.1%
Economic outlook
6.4%
15.0%
forecast growth
2016
in 2014
2017
Focus on: Lithuania 4

5. Focus on: Lithuania
Business growth prospects
Business optimism in Lithuania remained steady at 15% in Q3, ahead of peers in
Estonia (12%) and Latvia (-4%), and the eurozone average (8%). Business leaders
are more optimistic about the growth of their own operations: 42% of Lithuanian
businesses expect revenues to rise in the year ahead, in line with average over the
past 12 months. The Baltics average is marginally higher at 44% but the eurozone
average much lower at 26%. Expectations for profitability are subdued in Lithuania:
just net 9% expect to see profits climb in the year ahead, behind Estonia (32%)
and Latvia (14%).
Net percentage of businesses expecting to increase
exports (next 12 months)
Q3-2013
Baltics
Q2-2013
31
Lithuania
31
eurozone
to rise
19
Net percentage of businesses expecting to increase
investment in plant & machinery (next 12 months)
Q3-2013
54
57
Lithuania
Q2-2013
eurozone
19
47
Baltics
Lithuania
24
eurozone
24
56
Lithuania
Q1-2013
38
eurozone
Baltics
26
Baltics
Lithuania
Q4-2012
25
eurozone
Baltics
22
Baltics
Q1-2013
expect
revenues
26
eurozone
31%
Increasing regional vitality is evidenced in the exports figures. Across the eurozone
net 26% of business leaders expect to see exports increase over the next 12 months, up
from 19% three months previously. In Lithuania the figure is even higher at net 31%,
ahead of Estonia (26%) and Latvia (18%).
Levels of expected investment in plant & machinery remain elevated in Lithuania
which bodes well for long-term growth prospects. At net 57%, Lithuanian businesses
are planning more spending that peers across the Baltics (54%) and more than double
that in the eurozone (25%).
26
Lithuania
eurozone
Baltics
Lithuania
Source: Grant Thornton IBR 2013
17
Q4-2012
32
eurozone
Baltics
36
Lithuania
64
66
22
52
56
Source: Grant Thornton IBR 2013
Focus on: Lithuania 5

6. Focus on: Lithuania
Constraints on expansion
A shortage of finance emerges as the most pressing constraint on the
ability of Lithuanian businesses to grow their operations. It is cited by
45% of businesses in the economy, well above neighbouring Latvia (36%)
and Estonia (24%) which are much closer to the eurozone average (27%).
A lack of skilled workers (42%) is also
a major constraint and is brought into
sharper focus as the population continues
to decline. Business leaders in Latvia (50%)
and Estonia (38%) are also struggling with
a lack of talent in comparison to the
eurozone average (26%).
More than two in five businesses in
Lithuania cite regulations and red tape
as a constraint (41%), slightly above
the eurozone average (35%) but much
higher than the other Baltic nations
– Latvia (30%); Estonia (18%).
The principal area in which Lithuanian
businesses are struggling less that the
eurozone average is demand for their
goods and services. More than a third of
businesses within the single currency are
cite a shortage of orders (36%) compared
to just under a quarter in Lithuania (24%).
Infrastructure is well down the list of
concerns of Lithuanian business leaders.
Just 12% cite transport infrastructure as
a constraint on growth and just 6% cite
ICT infrastructure.
Percentage of businesses citing factors as constraints on their ability to grow their operations
45
42
27
Shortage of finance
41
26
Lack of skilled workers
35
36
24
Regulations & red tape
12
shortage of
finance
6
7
Transport infrastructure
constraining
growth
Shortage of orders
Source: Grant Thornton IBR 2013
a lack of
11
ICT infrastructure
Lithuania
eurozone
talent is a
challenge
Focus on: Lithuania 6

7. Focus on: Lithuania
Lithuania in Europe
Lithuania joined the European Union in 2004, the same year as Estonia
and Latvia. However, with Latvia joining the euro in 2014 and Estonia
a member since 2011, Lithuania will be last of the Baltic states to join
the single currency. All indicators suggest that the economy will meet
the strict conditions for entry, including public debt below 60% of GDP
and a budget deficit of under 3%, ahead of a proposed entry in 2015.
Would you like like to see further integration of EU member states?
This will please 61% of Lithuanian
businesses who indicate that they would
like their country to join the euro. Latvian
businesses are only slightly more positive
about adopting the single currency (64%).
Entry may also come as a bit of surprise to
many Lithuanian businesses as only 36%
expect the economy to join before 2016.
The flipside of course is that more than a
third of Lithuanian business leaders (35%)
do not want to adopt the euro. Indeed one
in ten want the currency union to break up,
double the rate in Latvia, and a further 34%
What form of integration would you like to see?
believe no more countries should join in
the near future.
Lithuanian businesses are positive about
further European integration however; 85%
would like to see cooperation between EU
member states. This compares to 83% in
Latvia and 79% in Estonia. Two in five
Lithuanian businesses want to see further
economic integration and one in five wants
to see a deepening of political ties.
For more on these results please look
at our recent IBR report: Future of
Europe 2013.
Estonia
Latvia
Lithuania
eurozone
79
83
85
89
Yes
Estonia
Latvia
Lithuania
eurozone
15
5
21
40
68
34
40
66
18
33
14
39
22
5
8
40
Political
Economic
Industrial
Would you like your country to adopt the Euro? (% yes)
64
61
59
56
Legal
20
11
Latvia
Lithuania
Denmark
Poland
Sweden
Source: Grant Thornton IBR 2013
United Kingdom
Source: Grant Thornton IBR 2013
Focus on: Lithuania 7

8. IBR 2013 methodology
The Grant Thornton International Business Report (IBR) is the leading mid-market business survey in the world,
interviewing approximately 3,300 senior executives every quarter in listed and privately-held businesses all over the
world. Launched in 1992 in nine European countries, the report now surveys more than 12,500 businesses leaders in 45
economies on an annual basis, providing insights on the economic and commercial issues affecting companies globally.
The data in this report are drawn from interviews with chief executive officers, managing directors, chairmen and
other senior decision-makers from all industry sectors in businesses with 20-249 employees in Lithuania. Q3 data is
drawn from 3,300 interviews globally (50 in each of Estonia, Latvia and Lithuania) conducted in September 2013.
2013 data is drawn from over 12,500 interviews (200 in each of Estonia, Latvia and Lithuania) conducted between
November 2012 and September 2013.
To find out more about IBR, please visit: www.internationalbusinessreport.com.
Dominic King
Grant Thornton International Ltd
Global research manager
T +44 (0)207 391 9537
E dominic.king@gti.gt.com
Gerli Soosalu
Grant Thornton Rimess OÜ
Marketing manager
T +372 626 4500
E gerli.soosalu@ee.gt.com
© 2013 Grant Thornton International Ltd.
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