The Ministry of Finance has updated projections of basic macroeconomic indicators for 2017-2020 – economy will grow at a moderate pace as a result of a substantial contribution of the domestic demand and exports, while wage growth will surpass inflation.
“For further successful growth of the economy, we must certainly implement the structural reforms. First, the labour market reform which may foster higher GDP growth. We have to strengthen budget cost effectiveness, save and build financial reserves, invest into the projects which promote economic growth, create long-term jobs and ensure investment returns. We should also manage better the State assets”, said Minister of Finance Vilius Šapoka.
Consumption and exports
The Ministry of Finance projects that in medium term Lithuania’s gross domestic product (GDP) will grow on average 2.5 % per year. In 2017, due to an increase in labour productivity, it may grow even faster – 2.7 %, while in 2018 the GDP growth may reach 2.6 %.
Improving financial situation of households in recent years and good consumer expectations fostered the growth of consumption expenditure of households. In 2016 it represented 5.6 % – this is the fastest growth rate during the last 9 years (faster growth rate was recorded only in 2007). Due to wages growing faster than inflation, the household consumption expenditure will further remain rather high. It will reach on average about 3.6 % per year (above the EU average) and will significantly contribute to the GDP growth. It is projected that household consumption expenditure will grow 3.9 % in 2017, 3.6 % – in 2018, 3.5 % – in both 2019 and 2020.
The growing level of investments will also contribute to the economic growth. In medium term investment will be stimulated by favourable banking credit conditions, alternative financing sources, and more active use of funds of the European Strategic Investment Fund and EU investments. Gross fixed capital formation expenditure in medium term might grow about 5 % per year, while there was no growth in the previous year.
In medium term the Lithuanian exporters will further have to adapt to changing economic circumstances, manage currency risk, decrease production costs and enhance operational efficiency. The Ministry of Finance projects that in 2017 exports of goods and services will grow 3.8 %, in 2018 – 3.9 %, in 2019 and 2020 – 4 % each year. Further growth of exports of furniture, plastics, food and agricultural products of the Lithuanian origin, export recovery of fertilisers and re-export growth of goods are expected in 2017. Better situation in the European dairy products market, recovering corn exports will have a positive impact on exports of food and agricultural products.
Wages, unemployment, inflation
In pursuit of competitiveness under rising labour costs, business will have to increase productivity, effectively use production facilities and labour force resources, invest into development (innovations and upgrading the qualification of human resources).
In 2016 the average monthly gross wages in the country grew by 7.9 % (in private sector – 9 %, public sector – 6.1 %) – this is the most rapid growth from the year 2009. It was significantly influenced by a rapid growth of the MMW (minimum monthly wage) in 2015-2016. The wages mostly grew in the service sector, where they were the lowest ones.
It is projected that in 2018–2020 wages will grow at the average annual pace close to 6 %. Wages will grow at the most accelerated pace in private sector, in particular, where the labour demand is buoyant and wages remain to be the lowest.
Under economic growth the unemployment rate will keep further decreasing and in 2017 will constitute 7 %, in 2018 – 6.4 %, in 2019 – 5.9 %, in 2020 – 5.4 %.
Under rapid growth of wages, businesses transfer the increasing share of the price rise of labour force to the prices of goods and services. The latters along with growing global prices of raw materials and processed products started from the second half of the year 2016 and will push up inflation even more. This year the inflation will mainly grow due to increasing price of oil on global market and due to almost twofold rise of the excise duties on alcoholic beverages. It is projected that in 2017 the average annual inflation will constitute 3.4 %. After the expiry of one-off effect, the inflation rate will slightly diminish: in 2018 – down to 2.7 %, in 2019 and 2020 – down to 2.5 %.
Public Relations Division