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Ministry of Finance Announces The Medium-Term Projections of Economic Indicators

Date

2007 09 11

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Vilnius, September 11. In the first half of the current year Lithuania’s exports of goods, oil products excluded, grew at a particular accelerated pace – it increased by 29%, thus demonstrating high growth rates of Lithuania’s potential, and additional strong demand stimulus gained from the still accelerating credit growth in the first half-year, will predetermine that 2007 GDP growth will continue to exceed the potential. A comprehensive analysis of the data of the last quarters of 2006 and the first half-year 2007 shows that self-contained economic activity return to potential production volumes is more likely in 2008, than in 2007. The demand stimulus on the economy is further financed by borrowed funds (the number of the employed in agricultural activities and fixed capital formation increased rapidly), therefore, 2007 GDP scope expansion will not decelerate and will account for 8.6%.

Due to the price growth expectations, the accelerated growth in earnings, changed behaviour of consumers, the Ministry has by several percentage points increased nominal GDP growth projections for the year 2007, however, these trends are going to change in 2008-2010 (GDP growth will increase more moderately). Monetary policy tightened by the European Central Bank and central banks of other countries globally restricts possibilities to stimulate the economy, and the Lithuanian economy  is affected at the envisaged pace, therefore, real GDP growth projections for 2008-2010 remain stable: in 2008  GDP will grow by 5.3%, in 2009 – by 4.5% and in 2010 – by 5.2%.

Statistical data of the year 2006, as compared with the data of 2005, show that an expansion exceptionally in legally received earnings fund was observed, while labour revenue received from the shadow economy kept decreasing in 2006. The Lithuanian economy maintains its competitiveness. The 2006 growth of official earnings by almost 18%does not reflect real trends in competitiveness of the Lithuanian economy, however, the official and shadow earnings’ total grew at a lower pace. The Ministry of Finance projects that in 2008 earnings will increase up to LTL 2,072 or by 15.1%, in 2009 – up to LTL 2,229.8 or account for 7.6%, in 2010 – up to LTL 2,389.7 or by 7.2%. An average unemployment level in 2007 will decrease to 4.5%. Motivation of people in working age to search for jobs within the medium-term (in 2009-2010), which expanded due to growth in earnings, will approximate the unemployment rate to 6% (non-accelerating inflation rate of unemployment (NAIRU).

Due to accelerating increase in heating and gas prices the 2007 HCPI average annual inflation projection has been increased up to 5.2%, and that of 2008 up to 5.6%. The average annual inflation will slowdown to 5.1% in 2009, and in 2010 it will decelerate to 3.6%. In the second half of the current year or in the beginning of the next year the possible to start credit growth decrease would limit the consumption pressure on Lithuania’s payment balance current account and inflation, therefore, in the end of 2010 inflation would decrease to 2.6%.

Please find comprehensive projections of Lithuanian Economic Indicators