EU's green shoots offer little comfort for Lithuania

17th August 2009, Comments 0 comments

The people of this country of 3.3 million are coming to terms with lean times after an abrupt halt to years of "tiger" growth.

Vilnius -- Green shoots of economic recovery elsewhere in the European Union are little cause for comfort in the Baltic state of Lithuania, which is sinking ever deeper in the worst recession of the EU bloc.

Deimante Zebrauskaite, head of a local food aid charity, is witnessing the painful fallout from the crisis first hand.

"The number coming to us has tripled.... One third of our support is going to families who've lost their jobs and have children," she said.

The people of this country of 3.3 million are coming to terms with lean times after an abrupt halt to years of "tiger" growth.

Lithuania is currently the only EU country where the economy contracted at a faster pace in the second quarter compared to the first, while France, Germany, Portugal and Sweden have emerged from their recessions.

The Lithuanian central bank has predicted the economy will shrink 19.3 percent overall this year -- making it by far the worst recession in the EU.

The result would also be Lithuania's worst since 1992 when the economy shrank by 21.26 percent during the traumatic industrial collapse that followed independence from a crumbling Soviet Union.

The current crisis is a far cry from the boom-time years.

Lithuania's economy grew by a record 8.9 percent in 2007 after expanding 7.8 percent in 2006.

Consumption was stoked by credit, rising wages and money sent home by hundreds of thousands of Lithuanians working elsewhere in the EU, which the country joined in 2004.

Now the property and construction sectors, which were both engines of growth, are in freefall.

In the face of the crisis, the cash-strapped Lithuanian government has raised value-added tax and slashed spending, including public-sector pay, and the private sector has followed suit.

In January, protests against the austerity drive turned violent, and police fired tear gas and rubber bullets to ward off protesters outside parliament.

Salaries are likely to fall 9.8 percent this year, while unemployment is expected to rise to 19.3 percent by 2010 from 9.7 percent at the moment.

The World Bank says the number of Lithuanians below the poverty line could climb by 49 percent in 2009, with the most impoverished part of the population growing to 636,000, or 18.9 percent, by the end of the year.

"When the first heating bills start coming in in the autumn, the situation's going to get really worrying," said Zebrauskaite.

As Lithuanians tighten their belts, domestic demand is falling inexorably.

According to the national statistical office, retail sales slumped by 28.8 percent in the first half of this year compared with January to June 2008.

To try to protect their business, supermarkets are trying to attract clients with discount details. Many retailers have gone bust and the main streets of Vilnius are increasingly marked by empty shop windows and "For Rent" signs.

"It's clear that people are not just cutting back on extras, but also on food," said Violeta Klyviene, an analyst at Danske Bank.

In the second quarter of this year, Lithuanians saved around 38 billion litas (11 billion euros, 15.7 billion dollars) -- almost double the state's expected revenues for the full year.

Klyviene said that was a clear sign people are bracing for yet-harder times.

"Europe is slowly climbing up the slope, but with the closure of the Ignalina power plant at the end of this year, we could see a second shockwave here," she warned.

Under the terms of its EU entry Lithuania pledged to close the Soviet-era nuclear plant by 2010. It provides the bulk of Lithuania's power, and experts warn the shutdown could mean a jump in electricity prices.

Alina Kamenskiene, an engineer with a young child who lost her job several months ago, is one of the millions of Lithuanians facing a harsher reality.

"When I shop, I look out for the best bargains. I'm lucky, because my parents help out, for example with vegetables from their allotment," she said.

"My husband's wages have gone down, we've got loans to pay, and we can no longer allow ourselves any kind of leisure activities."

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