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Lithuania Suffers From Crisis in Eurozone

Published: August 22, 2012; 19:13 · (Vindobona)

The Baltic country has to lower GDP growth forecasts. As foreign trade grows not as fast as expected, the Bank of Lithuania becomes more cautious. This year, Lithuania´s GDP is expected to grow by 3.0%.

Lithuania Suffers From Crisis in Eurozone / Picture: © Vindobona.org

As forecasts regarding the country’s slower foreign trade expansion materialised and consumers and producers continued to lack optimism, the Bank of Lithuania left the gross domestic product (GDP) growth forecasts for 2012 and 2013 basically unchanged. The Bank’s experts forecast that the real GDP will grow by 3.0 per cent this year and 3.4 per cent next year (according to the May forecast, these figures were 3.0 and 3.5 per cent, respectively).

“One of the main export markets of Lithuania, the euro area, is balancing on the edge of a downturn, therefore, the exports of our producers grow increasingly slower. We project that the demand for exported goods and services will grow slower in the nearest quarters, therefore, domestic demand will continue to have relatively the largest impact on economic growth”, said Ms. Rūta Rodzko.

However, she noted that the private consumption, which stimulated economic growth last year and in the beginning of this year, is recently growing unevenly. The private consumption is projected to grow by 4.2 per cent this year and by 2.8 per cent next year (according to the May forecast, these figures were 4.6 per cent and 3.1 per cent, respectively).

“Stronger recovery of consumption is hindered by poorer consumer expectations, compared to last year. This stems from uncertainty surrounding the global economic situation and just a slow and unsteady recovery in Lithuania’s labour market”, commented Ms. Rodzko.

In the opinion of the Bank of Lithuania economists, the assessment of the outlook for the country’s economic development will have a significant contribution to the development of the labour market, same as to investment in output growth.  If expectations of enterprises continue to be cautious, a strong breakthrough in the labour market can be hardly expected. It is projected that the number of the employed will grow by 1.4 per cent this year and by 1.5 per cent next year (according to the May forecast, these figures were 1.1 per cent and 1.4 per cent, respectively).

The annual inflation is currently declining due to external factors, however, the impact of fuel prices, same as other external factors, on inflation may be larger than expected over the projection period. The core inflation, which is related to the situation in domestic market, is low and should not increase much. Inflation is projected to be 2.9 per cent this year and 2.4 per cent next year (according to the May forecast, these figures were 2.9 per cent and 2.7 per cent, respectively).