The Bank of Lithuania’s updated forecast reflects worsening of consumer and businesses expectations continued to be affected by global market tensions
The Bank of Lithuania has left the current year domestic economic growth forecast unchanged at 6.2 per cent, and expects the gross domestic product (GDP) to grow only by 3.5 per cent next year (in August the figure was 4.8 per cent).
“Current uncertainty in the global markets has led to the worsening of the Lithuanian household and business expectations of further economic development in Lithuania and situation in the labour market. We expect businesses to be more conservative when investing and hiring employees, which allows us to downgrade the economic growth expectations for the near future”, BoL’s Economy Department Director Mindaugas Leika says.
The Review of Lithuanian Economy, the first issue of which came out alongside with the forecast, suggests that the real GDP growth at the present time is driven largely by private consumption which has kept increasing since the end of last year. In the beginning, consumption was encouraged by improving expectations of households, while recently it has continued to grow driven by the labour market recovery supported by increasing number of employees and wage growth. The recovery of private consumption is also indicated by the rise in retail sales as sales of both non-durable and durable goods have kept increasing.
“We do not expect the trend to prevail long. According to our forecast, the private consumption growth will decelerate at the end of the year and be growing at a slower rate in subsequent quarters”, Leika said.
The private consumption growth rate is expected to reach 6.3 per cent this year before going down to 3.5 per cent next year (according to previous forecast these figures respectively were 6.1 and 5.2 per cent).
A strong increase in investment has been observed recently. They have been growing mainly in private sector, where investments are made in transport and means of production. However, a less favourable economic outlook will have an impact on investments too. A likely deceleration in their growth may be related to a slowdown in the capital goods import in recent six months.
The ongoing employment growth this year led to a significant decline in unemployment, bigger than expected. The recent statistics indicate a noticeable decrease of unemployment among young people and individuals which were without job for a long-term. Because of the economic downturn the unemployment rate within these groups was especially high.
However, the uncertainty regarding the economic development prospects suggests the labour market future to be less favourable than expected earlier. Consequently adjustments have also been made to the employment outlook for 2012.
The declining global pressures in prices as well as some administrative decisions may contribute to the moderation in inflation projected earlier: 4.2 per cent this year and 3.0 per cent next year (the August forecasts showed 4.4 and 4.1 per cent).