Projections of Lithuanian Economic Indicators (April 2012)

Vilnius, April 3. Currently formed economic trends do not provide basis for change of the central economy development scenario. As it was projected in November 2011, the Lithuanian economy will grow 2.5% in 2012. Taking into account the currently formed EU assistance absorption plans of the Financial Perspective for 2007–2013, and the  labour force reduction due to ageing of society, in 2013–2014 GDP growth will reach 3.7 – 3.4%, accordingly. In 2015 GDP growth acceleration up to 4.3% is expected.

A rapid GDP growth of 5.9% in 2011, as it was projected, was determined by growing production and recovering consumption. Until the third quarter of 2011 a very rapid growth of the economy was observed – over 6% a quarter. However, in the 4^th quarter the Lithuanian economy experienced the impact caused by the EU debt crisis, and a more moderate 4.4% growth was recorded. The impact of foreign demand, which grew less rapidly, was mitigated by domestic demand, which grew at a more accelerated pace, and, in particular, by private consumption.

After several years lasting decline in real final consumption, a growth of 4.7% was recorded in 2011, and household consumption expenditure during the same period increased by 6.1%. Private consumption was mostly promoted by improving moods in households and recovering labour market – unemployment rate kept decreasing, and employment as well as wages kept growing.

Although the indebtedness of private sector limited and will continue to limit the consumption financing possibilities, still, the growing income and the accumulated deposits of residents will create conditions for a moderate increase in private consumption in 2012. Recently inflation has exceeded interest on deposits, and this encourages to consume, not to save for the future.

Due to the need for further consolidation of public finances, general government consumption will remain restrained in the medium term.

In 2012 slow development is projected in the main Lithuanian export markets, and EU economic growth perspectives are still risky. However, economic management policy pursued by the European Central Bank and EU Member States allows anticipating that in the 2012–2015 period favourable conditions for the growth of the Lithuanian economy will continue to form. The Lithuanian economy has retained its competitiveness; therefore, the dimension of export growth in 2013–2015 should be close to the multi-annual average export growth dimension.

In the nearest future, as long as the recovery of consumption is moderate, and the impact of external factors – food raw materials and energy prices remains low, the annual and average annual inflation rate will keep decreasing, and in-end 2012 it will be below 3%. It is projected that in the 2012–2015 period average annual inflation will fluctuate between 2.7% and 3.5%.

After the slowdown in export growth in 2012, the wage will grow at a slightly slower pace than in 2011. Later on, after the recovery of foreign demand, and in the event of the continuing decrease in the country’s labour force quantity, the wage will inevitably start increasing more rapidly.

In 2011 the unemployment rate made up 15.4% and it was by 2.4 percentage points lower on an average than that a year ago, and unemployment reduction was among the fastest in the European Union. However, due to the open European Union labour market, a marked reduction in the number of population and its ageing in the medium term, neither labour force growth, nor reduction stabilization is expected.   It is projected that the average annual number of the employed until 2015 will increase by 3.3%, and the unemployment rate will decrease to 9.8%.

The increasing European public and financial sector imbalances, the forecasted macro-economic recession and for these reasons anticipated slower economic development in the main trade partners of Lithuania raise the greatest concern for the Lithuanian economy and its financial institutions. Therefore, the outlook of the Lithuanian export markets in the European Union remains the key risk factor for the review of economic development scenario.

Projections of Lithuanian Economic Indicators (tables)