Projections of Lithuanian Economic Indicators (April 2008)

Ministry of Finance Confirms Stable Growth Forecast

GDP

The Ministry reaffirms previous Medium-Term Gross Domestic Product (GDP) growth forecast. Due to moderation of consumer confidence in economic development, in 2008-2009 Lithuania’s GDP, as it was envisaged, will grow at a moderate pace – 5.3 per cent and 4.5 per cent, respectively. Implementation of Fiscal Discipline Law and successful absorption of EU financial assistance for 2007-2013 will accelerate GDP growth in 2010-2011 – it is expected to grow up to 5.2 per cent in 2010 and to 5.8 per cent in 2011. 

Wage developments

Due to trends in the labour market, as well as its inertness, Ministry of Finance also increases wage growth forecast. It is envisaged that, as compared to the year 2007, in the current year wages will grow by 18.9 per cent (18.7 per cent*). Later growth is expected gradually to approximate to labour productivity growth: in 2009 average wage will grow by 9.8 per cent (7.6 per cent*), in 2010 – 9 per cent (7.2 per cent*), in 2011 – 8.3 per cent. It is envisaged that in 2011 average wage before taxes will make up LTL 2,794.

Inflation

Due to the growth of global food, raw materials and oil prices at a more accelerated pace than previously expected and the increased natural gas prices, the Ministry of Finance increases inflation forecast for 2008. The annual inflation (HCPI) is expected to reach 6.8 per cent (5.5 per cent*), while the average annual inflation will grow up to 9.2 per cent (8.0 per cent*)

The Ministry of Finance bases its forecasts on the assumption that majority of factors currently fostering inflation will not reoccur in the year 2009, creating favourable conditions for gradual decrease of prices. Following the decreasing impact of borrowing on the economy, after oil and gas prices settle and excise duty rates are harmonised with the EU minimum rates, the average annual inflation is expected to decrease to 2.3 per cent in 2011.

* - previous (2007) forecast.