New Country Reports market report from Business Monitor International: "Lithuania Business Forecast Report Q3 2013"

Boston, MA -- (SBWire) -- 06/05/2013 --Lithuania's new government remains highly popular and will have a unique opportunity to raise its international profile when it assumes the EU presidency in the second half of the year. This combined with recent improvements in the country's public finances will enable Lithuania to more closely align itself with the euro area's creditor countries.

Stronger-than-expected real GDP growth in 2012 and a continued commitment to fiscal consolidation from the Lithuanian government will see the nominal fiscal deficit narrow to 2.9% of GDP in 2013. Although we identify several longer-term challenges, particularly relating to recent emigration trends and a shallow domestic bond market, we believe that lower borrowing costs in the near term will keep the country on a more sustainable fiscal trajectory.

With the public sector having assumed much of financial institutions' debt burden in recent years, the sustainability of Lithuania's large negative net international investment position will continue to depend on prudent fiscal policy exercised in Vilnius. However, with the current account deficit rapidly shrinking, we believe that the need to access foreign funding will continue to decline.

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Major Forecast Changes

With Lithuania's nominal budget deficit having come in at 3.3% of GDP in 2012, we have revised our 2013 fiscal shortfall forecast to 2.9% of GDP, from 3.8% previously.

Risks To Outlook

Although a precarious outlook for the eurozone economy threatens to derail Lithuania's own fragile recovery over the coming years, we believe that risks are currently skewed to the downside, as a recovery in GFCF growth could occur more rapidly than we are anticipating. For instance, the rapid response by the authorities to the insolvency of former lender Ukio Bankas earlier this year, underpins our belief that systemic risks to Lithuania's financial system are well contained.

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