Lithuanian industry "in freefall" amid Baltic economic fears

LithuaniaVilnius  - Industrial production (IP) in Lithuania nosedived by more than 15 per cent in February, according to official figures released Monday by the national statistics office.

EU member Lithuania is the biggest of the three Baltic states with the largest industrial sector. However, its industrial muscle appears to be withering in the face of the global economic downturn according to data from Statistics Lithuania showing industrial production fell by 15.3 per cent year-on-year in February.

January's figures showed a contraction by 5.6 per cent.

"Only the energy sectors contributed positively to industrial outcome. However, IP excluding oil production is in freefall as in the other Baltic states and in February it dropped 23.3 per cent year-on-year," said Danske Bank analyst Violeta Klyviene.

The figures were much worse than expected and signalled that the economic outlook for the Baltic states is getting more perilous by the minute.

"Just very recently the industrial sector in Lithuania looked much healthier compared to the other Baltic states. It now looks like all three Baltic countries might experience a drop in GDP (gross domestic product) in double digit numbers," Klyviene said.

The news added credence to a report from London-based Capital Economics on Monday which predicted a 10 per cent shrinkage in GDP for Estonia for 2009, and a whopping 15 per cent fall for Lithuania and Latvia.

"The outlook for the Baltics is terrible. With the financial sector in disarray, private consumption is set for huge contractions, driving a very deep recession," the report said.

Capital Economics also raised the spectre of currency devaluation in the region, though it said devaluation was not part of its "core scenario."

All three Baltic states maintain their own currencies, which are pegged to the euro at fixed exchange rates, but the Estonian kroon, Latvian lats and Lithuanian litas have all become over-valued and have been subject to regular devaluation rumours.

"If one peg goes (Latvia looks the most vulnerable) it could bring down the rest. This would cause a sharp spike in bad debts and GDP could shrink by 20 per cent this year," the report said. dpa

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