Projections of Lithuanian Economic Indicators (April 2013)

Though after extremely rapid developments in 2011, in 2012 Lithuanian economic growth slow downed – GDP grew by 3.6 per cent, Lithuanian economy demonstrated its resistance to negative external and internal factors, and remained to be one of the most rapidly growing economies in the EU. The economic growth has been characterised by growing production, record rich crop yields, rapid development of exports and consumption.

In 2012 the most significant growth of the gross value added was evidenced in such sectors as agriculture, forestry and fisheries (8.6 per cent), information and communication (7.0 per cent), trade, transport and accommodation as well as catering services (6.3 per cent) and manufacturing (6.6 per cent). Following the construction boom in 2011, a downturn was observed in 2012 – the value added decreased by 5.0 per cent in construction activities, as compared to the same period of the previous year.

In 2012, as compared to 2011, exports of goods and services grew at a more accelerated pace than imports (by 11.2 and 5.6 per cent, accordingly), while net exports had a positive effect on GDP growth. Lithuania’s economy has retained its competitiveness; therefore, the dimension of export growth in 2013–2016 should be close to the multi-annual average export growth dimension.

Due to uncertain eurozone growth perspectives, Lithuanian economic entities postponed their investment plans, therefore, in 212 the investments into gross fixed capital decreased by 2.5 per cent (the major slump of this indicator was registered in the 4^th quarter – 7.7 per cent).   The recovery of external environment, favourable borrowing conditions, better economic perspectives than of other EU Member States, business friendly environment, projects initiated by the Government (a new housing renovation model) in 2013–2016 are expected to result in promoting Lithuanian entrepreneurs to expand production capacity (currently capacity utilisation rates make up 72 per cent) and to boost investments.

In 2012, due to decreased real income of households, household consumption grew at a slower pace than a year ago. The indebtedness of private sector limited and will further limit the consumption financing possibilities; however, growing income and accumulated deposits of the residents will create conditions for a moderate increase in private consumption in 2013. Currently inflation exceeds interest on deposits and this encourages to consume, but 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.

Though EU economic growth perspectives are still risky, the economic management policy pursued by the European Central Bank and EU Member States allows anticipating that also in the period of 2012-2015 favourable conditions for the Lithuanian economic growth will keep developing.  Therefore, we leave the Lithuania’s economic development scenario, formed in autumn of 2012 and stating that GDP in 2013 should grow by 3 per cent, in 2014 – 3.4 per cent, and in 2015 – 4.3 per cent, unchanged.  We anticipate that due to the decreased impact of EU financial assistance on the economy, in 2016 GDP growth will slow down to 4 per cent.

The average annual inflation calculated according to the harmonised index of consumer prices (hereinafter – the HICP) in 2012 constituted 3.2 per cent and was by almost 1 percentage point lower than in 2011 (4.1 per cent). The most important factor of decreased average annual inflation in 2012 was mainly external factor-related prices rising (and for some goods – decreasing) at a slower pace.

In 2013 inflation will be slightly speeded up by increased (to meet the minimum requirements set in the EU Council directive) excise duties on diesel (since the beginning of the current year) and tabacco products (since March), a minimum monthly salary increased up to LTL 1,000 (17.6 per cent) since 1 January. However, the reduced VAT rate of 9 per cent launched from the beginning of the year for passenger transport by passenger trains as well as transportation of passenger luggageby regular routes and for periodicals will have a lowering effect on inflation. Considering a weaker impact of external factors, a lower inflation rate is anticipated in 2013 than projected in autumn of 2012.

In the medium term, as long as the recovery of consumption is moderate, and the impact of external factors – food raw materials and energy costs remains low, the average annual inflation rate is anticipated to be 2.4 – 3.2 per cent. Inflation slowdown, which started in the middle of 2011, will end in 2013. In the period of 2014–2016 a moderate acceleration of inflation attended by growing demand for labour force and salary growth tendencies is projected. Nevertheless, a slight risk still exists that after the upsurge of the oil price at a more accelerated pace than projected in the European Commission’s assumptions, due to different unforeseeable factors (e.g. feasible international disruptions to the oil supply or geopolitical conflicts); this would have a negative effect on costs of different goods and services in Lithuania. Moreover, under constant growth of food demand in the world, prices of food raw materials as well as production prices could diminish only under occurrence of natural conditions favourable for crops (e.g. as in 2012). Therefore, a rising food raw material cost in the medium term is also attributable to higher inflation risks. The effect of food raw materials and energy costs on inflation in Lithuania would be stronger than in the developed countries due to a larger share of the consumer basket linked to these costs.

Due to a minimum monthly salary increased this year, in 2013 wages will increase more than planned in autumn of 2012. Afterwards, following the recovery of foreign demand and further increase in demand for labour force as well as a slight decrease in labour force supply in the country, wages will continue to increase at a more accelerated pace. In the period of 2013–2016 wages are anticipated to grow by 5–6.5 per cent.

In 2012 Lithuania, according to the pace of a decline in unemployment rate, was the second country in the EU. In 2011 the unemployment rate declined by 2.5 percentage point (down to 15.3 per cent), in 2012 it kept declining at a similar pace and, in average, it represented 13.2 per cent – by 2.1 percentage point lower than in 2011. This was due to the increased number of the employed by 1.8 per cent and decreased number of the unemployed by 13.7 per cent.

In 2012 the employment level of the population aged 15–64 constituted 62.2 per cent and over the year it increased by 1.9 percentage point. One of the reasons determining higher employment level is increased vacancy rates which in 2012, in average, made up 10.5 thousand and were by 7 per cent higher than a year ago. The biggest increase in the number of the employed, as compared to 2011, was observed in manufacturing sector –, in average, 8.7 thousand (4.5 per cent growth), transport and storage sector –, in average, 4.1 thousand (4.5 per cent growth), information and communications sector –, in average, 3.9 thousand (15.2 per cent growth), professional, scientific and technical activities sector –, in average, 3.7 thousand (8 per cent growth), construction – , in average, 3.6 thousand (4.2 per cent growth). The growth in the number of the employed in the second half of 2012, as compared to the second half of 2011, was more accelerated as compared to the first halves of respective years, what implies that in 2013 the situation in labour market will continue to improve rapidly.

The optimistic mood towards the increased number of the employed and decreasing unemployment rate is also created due to improving, though at a low pace, results of business tends surveys regarding the expected number of employees during the upcoming 2–3 months, more favourable customers’ opinion towards the planned changes in the number of the unemployed in upcoming 12 months evaluated during the customer survey, a number of the long-term unemployed decreasing for two years in turn already (acc. to the data of the labour force survey, in the 4^th quarter of 2012 the number of persons unemployed for 1 year and longer was 87.3 thousand – 37.6 per cent less than nearly two years ago, when the highest number of the long-term unemployed was registered since the second quarter of 2002).

Though the economy is recovering and the unemployment rate will continue to decrease at a rather accelerated pace, its rate will remain quite substantial over the entire medium term. The unemployment is anticipated to decrease down to 11.5 per cent in 2013, while in the period of 2014–2016, due to a lower decrease in labour force, the unemployment rate will continue to decrease not so fast and will constitute 10.5, 9.8 and 9.1 per cent, accordingly.

KEY MACROECONOMIC INDICATORS 

ECONOMIC INDICATORS, current prices, LTL mill.

LABOUR MARKET, EARNINGS AND PRICES