Lithuanian export: is it time to prepare for changes? Aleksandr Izgorodin Expert

Lithuanian export: is it time to prepare for changes? Aleksandr Izgorodin Expert

Export is the main locomotive behind growth in LT economy Lithuania: change in real GDP and its components, % 78,2 71,8 71,1 51,3 46,2 39,5 32,6 23,0 28,2 32,4 27,9 5,9 4,6 3,7 10,8 16,2 0,0-6,2 Final consumption expenditure of households Final consumption expenditure of general Government Gross fixed capital formation Exports of goods and services Imports of goods and services Change in 2017, compared to 2008, % Change in 2017, compared to 2010 % Change in 2017, compared to 2012 % Gross domestic product 2

Share of export in GDP in LT is twice higher than EU average Source: Eurostat 3 Slovakia 86 Hungary 71 Netherlands 67 Czech Republic 67 Slovenia 66 Spain Ireland Lithuania Belgium Estonia Bulgaria Latvia Poland Germany Austria Denmark Euro area EU-28 Luxembourg Sweden Romania Portugal Finland Italy Malta Croatia 24 27 26 24 24 35 35 33 32 31 30 30 39 38 42 42 51 51 62 61 66 France Greece United Kingdom Cyprus 13 18 17 22 Export of goods: percentage of GDP, 2017, %

Lithuanian manufacturing is increasing its orientation towards export markets 20,0 Manufacturing: share in GDP, % Manufacturing: share of export sales in total sales of manufactred goods, % 19,0 18,0 59 60 60 60 59 61 62 62 17,0 16,0 52 54 55 15,0 14,0 13,0 12,0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 EU-28 Lithuania 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Eurostat; Lithuanian Statistics Department 4

Lithuanian export and manufacturing demonstrate very dynamic growth Export of goods of Lithuanian origin (excluding refined petrolium; tobacco; fertilizers), mln. EUR 11315 Change in export of goods of Lithuanian origin (excluding refined petrolium; tobacco; fertilizers), % 7335 8349 8800 9167 9458 10047 24,2 16,1 13,8 12,6 6133 6188 5087 6318 0,9 5,4 4,2 3,2 6,2-17,8 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 5

Lithuanian export and manufacturing demonstrate very dynamic growth 10921 Lithuania: production output in manufacturing (excl. refined petrolium products), mln. EUR (constant prices) 9987 8274 9050 10156 11086 11620 12442 13029 13727 14641 32,1 Change in manufacturing output, % 61,8 34,1 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Change in man. output in 2017, compared to 2012, % Change in man. output in 2017, compared to 2010, % Change in man. output in 2017, compared to 2007, % 6

EU remains Lithuania s largest export partner; share of CIS is dropping 7 80,3 82,0 80,6 11,0 11,5 11,1 11,4 12,1 12,6 6,3 5,4 6,8 7,6 8,0 8,4 7,9 3,0 2,6 0,2 0,2 0,2 0,2 0,3 0,3 0,3 0,2 0,2 0,4 0,7 0,9 0,8 1,1 2,3 1,2 1,5 1,4 1,9 3,1 3,4 5,5 5,3 5,8 6,6 9,9 79,0 74,4 78,5 78,8 10,9 Structure of export of goods of Lithuanian origin (excl. oil, tobacco and fertilizers), % EU CIS Russia Japan China United States Other 2005 2007 2009 2011 2013 2015 2017

Export growth to EU compensated losses in CIS market Change in export of goods of Lithuanian origin (excl. oil, tobacco and fertilizers), % 25 21 6 111 74 49 311 285 216 2515 2370 3123 3980 3890 5182-65 -274-493 -168-318 -395 Export - total EU CIS Russia Japan China United States 2017 compared to 2007, mln. EUR 2017 compared to 2010, mln. EUR 2017 compared to 2013, mln. EUR 8

Lithuanian exporters are becoming more dependent on Scandinavia Structure of export of goods of Lithuanian origin (excl. oil, tobacco and fertilizers) to the EU region, % 45 43 41 41 39 39 38 17 21 19 22 22 21 22 24 24 28 25 26 26 28 11 8 9 9 8 9 9 3 4 4 4 4 4 4 EU home market (LV+EE+PL) EU core countries Scandinavia Southern Europe EU - other 2005 2007 2009 2011 2013 2015 2017 9

11,5 11 10,5 10 9,5 9 8,5 8 Uncertainties about Swedish economy are pressing on the Swedish Krona EUR against the Swedish kronor exchange rate Drop in Swedish Krona: Beneficial for LT contract manufacturing companies; Swedish exporters become more competitive in foreign markets. Bad for LT companies that export final goods to Sweden. 2008 Week 1 2008 Week 18 2008 Week 35 2008 Week 52 2009 Week 17 2009 Week 34 2009 Week 51 2010 Week 15 2010 Week 32 2010 Week 49 2011 Week 14 2011 Week 31 2011 Week 48 2012 Week 13 2012 Week 30 2012 Week 47 2013 Week 12 2013 Week 29 2013 Week 46 2014 Week 11 2014 Week 28 2014 Week 45 2015 Week 10 2015 Week 27 2015 Week 44 2016 Week 8 2016 Week 25 2016 Week 42 2017 Week 7 2017 Week 24 2017 Week 41 2018 Week 6 Source: NASDAQ OMX Stockholm AB 10

Lithuanian export: what next? 2018.05.29 11

120,0 110,0 100,0 90,0 80,0 70,0 60,0 Euro zone economy: running out of steam? Economic sentiment indicator 20,0 Industrial confidence indicator 10,0 0,0-10,0-20,0-30,0-40,0-50,0 2007M01 2007M06 2007M11 2008M04 2008M09 2009M02 2009M07 2009M12 2010M05 2010M10 2011M03 2011M08 2012M01 2012M06 2012M11 2013M04 2013M09 2014M02 2014M07 2014M12 2015M05 2015M10 2016M03 2016M08 2017M01 2017M06 2017M11 2007M01 2007M06 2007M11 2008M04 2008M09 2009M02 2009M07 2009M12 2010M05 2010M10 2011M03 2011M08 2012M01 2012M06 2012M11 2013M04 2013M09 2014M02 2014M07 2014M12 2015M05 2015M10 2016M03 2016M08 2017M01 2017M06 2017M11 Euro area Germany Euro area Germany Source: Eurostat 12

80 75 70 65 60 55 Going forward, LT companies must be cautious with new investments into manufacturing capacity Lithuania: industrial production capacity utilization level, % 2003M04 2003M07 2003M10 2004M01 2004M04 2004M07 2004M10 2005M01 2005M04 2005M07 2005M10 2006M01 2006M04 2006M07 2006M10 2007M01 2007M04 2007M07 2007M10 2008M01 2008M04 2008M07 2008M10 2009M01 2009M04 2009M07 2009M10 2010M01 2010M04 2010M07 2010M10 2011M01 2011M04 2011M07 2011M10 2012M01 2012M04 2012M07 2012M10 2013M01 2013M04 2013M07 2013M10 2014M01 2014M04 2014M07 2014M10 2015M01 2015M04 2015M07 2015M10 2016M01 2016M04 2016M07 2016M10 2017M01 2017M04 2017M07 2017M10 2018M01 13

Will LT manufacturing manage to sustain its competitiveness? Manufacturing: gross value added per actual hour worked, EUR/hour Manufacturing: change in wages and productivity in 2017, compared to 2012, % 18,4 42 15,4 16,1 16,1 16,8 16,9 16 12,9 10,9 10,4 14 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Wages and salaries Grss value added per hour worked 14

Rising labor costs stimulate LT manufacturing to invest into productivity Change in manufacturing output and empolyment in Lithuanian manufacturing in 2017, compared to 2008, % 46,6-14,4 Change in 2017, compared to 2008 Manufacturing: number of employees Manufacturing: production output 15

LT manufacturing is dominated by low-tech sectors 100% 90% Structure of production in Lithuanian manufacturing (excl. oil industry), % Structure of Lithuanian manufacturing (excl. oil industry), 2016, % 85,8 80% 70% 74,2 76,2 75,8 60% 73 74 74 75 75 74 50% 40% 30% 20% 10% 0% 27 26 26 25 25 26 2007 2009 2011 2013 2015 2017 High and medium-high technology Low and medium-low technology 25,8 Share in manufacturing output, % 14,2 Share in manufacturing employment, % High and medium-high technology 23,8 24,2 Share in manufacturing value added, % Share in manufacturing revenue % Low and medium-low technology 16

Robotization in the EU: challenge or opportunity to LT business? Manufacturing: change in production output and number of employees in 2017, compared to 2010, % 17 Source: Eurostat Ireland 15,8 62,7 Finland Estonia Latvia Lithuania Poland Czech Republic Slovenia Denmark Germany Belgium EU-28 Euro area Netherlands United Kingdom France Sweden -12,3-5,5-0,8-2,6-10,9-7,3 1,2 14,6 5,8 7,2 18,2 17,2 26,5 3,4 23,4 15,6 3,9 15,4 12,3 3,5 10,7 0,6 10,3 6,9 1,5 4,7 2,1 49,8 44,9 43,0 39,0 34,7 Manufacturing: change in production output in 2017, compared to 2010, % Manufacturing: change in number of employees in 2017, compared to 2010, %

Robotization in the EU: challenge or opportunity to LT business? Share in employees in manufacturing sector in total employment, % 21,2 19,3 16,0 12,4 14,8 11,6 12,2 11,7 17,3 15,6 10,8 9,4 16,6 13,3 13,6 10,3 Belgium Denmark Germany Ireland Lithuania Netherlands Finland Sweden 2008 2010 2012 2014 2016 2017 Source: Eurostat 18

Ačiū už dėmesį VšĮ Lietuvos inovacijų centras Mokslininkų g. 6A, LT-08412 Vilnius Tel.: +370 5 235 61 16 Faks.: +370 5 213 27 81 lic@lic.lt 2018.05.29 19