Wednesday, August 02, 2006


The End of the Road In Lithuania?

I am sorry for the rather dramatic headline deployed above but I really don't think that any of this should be taken lightly. I will begin with this short yet very telling note from Bloomberg which informs us that unemployment in Lithuania dropped to a staggering 2.7% in June. This of course signifies an extremely tight labour market and quite simply this cannot go on for much longer. The clear evidence of this is first and foremost to be found in the quarterly y-o-y GDP figures which demonstrate Lithunia's sizzling growth rates much alike the other Baltic countries. As such, Q1 2007 saw an annual growth rate of 8.3% and on average the last five quarters saw a growth rate of GDP of 7.8%. This is of course putting strains of capacity in Lithunia and like in the rest of the Baltic countries the short term cyclical indicators point to very brisk growth in labour costs.
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Lithuania Under the Loop

As promised below in my brief note on my continuous coverage of the CEE economies I am going to take a close look at Lithunia's economy and as such try to give a solid picture of what the risks are of a hard landing. More specifically, I will be looking at the labour market and the formation of price and employment expectations. My immediate impetus to do this is the amount of attention I got regarding my last in-depth look at Lithuania where I asked the timely of whether in fact Lithuania was running fast out of capacity relative to the sizzling growth rates. In short, I want all my bases covered on this one.
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