2017-06-20
An improvement in the international environment entails stronger growth of the Lithuanian economy. In view of the above, the Bank of Lithuania now projects higher annual GDP growth (3.3%) compared to the spring projection of 2.6 per cent. In addition to robust export growth, the economy is also driven by domestic consumption, boosted by rising wages.
‘Currently, we are in a situation when wages are rising across all employee groups, no matter their amount. However, more and more enterprises claim that even though they constantly increase wages, they cannot find enough employees, which restricts their activities. Of course, such circumstances are exacerbated by the poor demographic situation. We believe that the situation for employees will remain favourable and higher wages will enable residents to increase consumption expenditure,’ said Gediminas Šimkus, Director of the Economics and Financial Stability Service at the Bank of Lithuania.
This year, household consumption will be 4.2 per cent higher than last year. However, wage and related consumption growth may fizzle out as labour productivity does not rise as fast as wages. The cost of products manufactured or services provided by enterprises are on the upswing, leading to a loss of competitive advantage; thus, over time, production may not grow as much as it did until now, which would worsen the situation for employees.
However, exports will stimulate economic growth in the near future: the projection for their growth in 2017 is 3.9 per cent. Due to intensified international trade, Lithuanian exporters trade more actively with partners both in the West and the East. The transport sector stands out, with its export services having increased by one tenth last year; this year, this sector has continued its strong upward climb.
In 2017–2018, business development and increased activity of the economy as a whole is also likely to pick up due to growth in investment, especially due to recovering flows from EU funds.
Prices do not lag behind other indicators and will rise this year as well. It is projected that inflation will stand at 3.2 per cent this year. The upsurge is mainly driven by global oil and food price increases, higher excise duties on alcoholic beverages and tobacco, as well as the raised VAT tariff on heating.
The Lithuanian Economic Review is prepared and published on a semi-annual basis; it deals with the dynamics of the real sector, prices, public finances and credit in Lithuania, assesses the prospects of Lithuania’s economic development. The latest macroeconomic projections and the Lithuanian Economic Review are available on the Bank of Lithuania website.