2014-05-19
Growth of the Lithuanian economy to further be driven mainly by domestic demand
The Bank of Lithuania’s GDP growth projection for the current year is 3.3 per cent and 3.6 per cent for the next year. As compared to the previous data, the GDP growth projection has been reduced by 0.3 p. p. for 2014 and by 0.2 p. p. for 2015.
“The economic growth projection has been slightly reduced mainly on account of export development below expectations. However, with high domestic demand, the Lithuanian economy’s growth rates will be among the strongest in Europe,” says Raimondas Kuodis, Deputy Chairman of the Board of the Bank of Lithuania.
The international economic situation has worsened mainly on account of the especially weakened development of the Russian economy. With the conflict between Russia and Ukraine not subsiding, the outlook for the development of the Russian economy and for the countries closely related to it through economic ties is assessed as worse. It is projected that, this year, the growth of the Russian economy will fizzle out and will be close to zero.
However, while Russia is among Lithuania’s major foreign trade partners, this country’s worse economic development will only have a limited impact on our country’s economy. Russia accounts for approximately one-fifth of a total of Lithuanian exports of goods and services; however, only a small share of these exports are of Lithuanian origin, with re-exports accounting for their largest share (about 70%). According to the calculations of Bank of Lithuania economists, a 1 p. p. deceleration in Russia’s DGP growth results in a 0.3 p. p. weaker growth of the Lithuanian economy.
The worsening outlook for foreign trade in the East is partly offset by a recovery in the economic development in the EU countries. The economic confidence indicators in the EU have been improving, domestic demand is beginning to rise, and favourable changes in the labour market begin to be sensed. The major factor behind growth in the Lithuanian economy has been domestic demand, especially due to an increase in retail trade, driven by a rise in real income.
Price trends in Lithuania are projected to further be favourable for consumers, while average annual inflation — to further be low, at 0.9 per cent this year.
“With inflation lower than implied wage growth, the purchasing power of the population is rising, which is favourably affecting consumption,” says Rūta Rodzko, Director of the Economics and Financial Stability Service at the Bank of Lithuania.
According to Bank of Lithuania projections, the rise in wages and salaries in 2013 due to the increase of minimum wage this year is likely to continue to rise moderately, by 3.6 per cent.