Lithuania: A return to growth but challenges remain
Overview:
After a savage downturn it is good news for the authorities that Lithuania posted positive economic growth in 2010 as a whole and a particularly good growth number in Q4 2010. Nevertheless, a string of challenges remain to be addressed as a result of the deep recession. GDP is still well below pre-crisis levels and a negative output gap means that, while inflation is relatively subdued, unemployment remains very high. Moreover, the loosening in fiscal policy undertaken to soften the impact of the downturn must now be reversed as the public debt to GDP ratio has risen quickly. Even as the current account records surpluses the authorities need to be aware that all the price competitiveness lost in the pre-crisis years has not been regained and that the external position may deteriorate quickly once more as the economy picks up steam.