The Perspectives of Macroeconomic Prognosis (November-December 2007)

On December 17, 2007 the Ministry of Finance announces the perspectives of the macroeconomic projections taking into consideration the economic indicators released by Department of Statistics in the end of October 2007 and the international tendency of increase in food prices in November . The results of III quarter of 2007 indicate that overly optimistic confidence of consumers on economical development was not corrected by official information about moderate economical development perspectives and risks, formed in a real estate market; therefore credit increase has been accelerating still. Credit stimulated demand and growth of export have determined greater 2007 GDP growth. The GDP growth will be close to 10 percent.

According to consumer price index the inflation of 2007 and 2008 will be greater than it was prognosed in August. Objective factors also contributed to those indicators: the increased oil prices by 12 percent in September and the international tendency of increase in food prices showed up in Lithuania will lift 2007 average annual inflation rate to 5,8 percent and in December 2007 annual inflation rate might increase to 8.3 percent and 2007 average annual inflation rate might increase to 6,5 percent.

Healthy and orderly decrease of credit deceleration and real estate prices correction, moderation of GDP growth and inflation levelling-off that was observed in the second quarter of 2007 in Estonia supports the assumptions that natural slowdown cycle of of economy in Lithuania will start a few quarters later in 2008. As the uncertainty on the scope and timing of the natural slowdown of economy still remains, there is no reason to change 2008-2010 macroeconomic projection perspectives, which were announced in September by Ministry of Finance. If the natural cyclical deceleration of economy in Lithuania possibly starts later than it was assumed in the beginning of September, the deceleration of growth of GDP in 2009 will be accordingly compensating for the delay and the projected acceleration of growth in 2010 would be postponed towards 2011-2012.

In 2008 when credit financed demand pressure on prices diminish and oil price stabilizes at 56 euros per barrel the inflation of 2009-2010 would gradually slow, as it was forecasted, and at the end of period would come down to 2,6 percent. After urgent implementation of the measures envisaged in the Inflation Management Strategy for medium term, especially those for reduction of incentives for risky investments to real estate, and after occurrence of the main economic development scenario, it is envisaged that inflation will decrease lower than 2.3% by the end of the year 2011.

For 2008 the annual monthly gross earnings growth perspective is increased from 15.1 per cent to 18.7 per cent, i.e. to the level of LTL 2,137. Earnings growth perspective for 2009-2010 is not changed, however, due to a more accelerated growth of earnings in 2008, the level of earnings in 2009 and 2010 will make up LTL 2,298 and LTL 2,463, respectively.

Taking into consideration the number of the employed population in the 2^nd quarter 2007, the growth projection for the average annual number of the employed population for 2007 is increased by 0.5 percentage point up to 2.6 per cent, and it represents 1,534 thousand of the employed. The growth perspective for the number of the employed for 2008-2010 is not changed, however, due to a more accelerated growth of the employed in 2007, the number of the employed in 2008-2010 will make up 1,538 thousand (in 2008) and 1,539 thousand (in 2009-2010). Taking into consideration the unemployment rate decreased in last quarters, the unemployment rate perspective for 2007 is reduced from 4.5 % to 4.2 %.

Projections of Lithuanian Economic Indicators (September 2007)

Table 3 

1) hired employees, regrouped into employed full-time 

2) due  to  different treatment of the concept of the unemployed, the unemployment rate and  the number of the unemployed according to the data by the labour exchange and labour force survey are different. Establishing the unemployment rate acc. to the data by the labour exchange the number of the unemployed covers only those persons who have been registered in the labour exchange, during the survey the unemployed persons who have not been registered in the labour exchange but searching for a job have also been recorded. The methodology for establishment of the unemployment rate based on the labour force survey is in compliance with Eurostat methodological requirements.

*The unemployment projections for 2008-2010 are based on the presumption that due to more accelerated growth in wages the labour force activity may increase significantly and migration flows may change; if the level of labour force activity and migration changed in view of recent monitored trends, then unemployment would represent 4.8 % in 2008 and 4.9 % in 2009-2010, respectively.

** - projection outlook evaluated in November-December 2007. The Convergence Programme of Lithuania of 2007 states that upon realisation of risks related to rise in prices of natural gas to regulated consumers and heating supply companies, inflation would accelerate by about 1.5 percentage points in 2008.