The domestic economy entered the stage of slower growth
Taking into consideration the increase in the number of signs showing less favourable development prospects, the Bank of Lithuania revises its gross domestic product (GDP) growth prospects for this year downwards. It is projected that, after growing by 5.8 per cent last year, the real GDP will increase by 2.2 per cent this year and 3.3 per cent next year.
“Heavy clouds over the economies of some indebted euro area states have not yet dissipated. Owing to that, deteriorating expectations slow down the economic development of the main trade partners of our country. This uncertainty restricts the volumes of operation of the Lithuanian enterprises, limits investment plans, hinders a more rapid recovery of the labour market and induces households to save”, said Mr. Mindaugas Leika, Director of the Economics Department of the Bank of Lithuania.
According to the forecasts of the Bank of Lithuania, private consumption, which grew by 5.6 per cent last year and strongly supported the domestic economy, will slow down its growth rate more than in half – to 2.5 per cent. The growth of 2.6 per cent is projected for 2013.
Investment in gross fixed capital, another constituent of domestic demand, should grow less this year than it grew on average up to now (it is projected that this investment will increase by 5.0%), while next year it should grow more – by 7.9 per cent.
The strength of the export, another important driver of the economy, will decline. Still, when assessing longer-term data, experts of the Bank of Lithuania notice that our country’s export is growing more than the import of the main foreign trade partners – EU states and Russia. This shows that competitiveness of Lithuania’s exporters helps them in gaining increasingly larger market share in these countries. However, it is projected that the import demand in the said countries will weaken further gradually in the coming years, therefore, Lithuania’s export will grow significantly slower this year. After the jump of 13.6 per cent last year, the real export of goods and services is forecasted to increase by 3.9 per cent this year and by 5.8 per cent in 2013.
The suspended activity of AB bankas SNORAS will also have an impact on the development of Lithuania’s economy. Although the direct impact of this bankruptcy on the economic development will be low, the indirect impact is still projected. According to the experts of the Bank of Lithuania, the negative impact of this factor on the GDP growth may be up to 0.5 percentage point.
The situation in the labour market is still improving, however, it was noted that, according to seasonally adjusted data, the number of the employed has not been growing recently. It is likely that the employment will increase insignificantly during the projection horizon.
Wage growth is projected to be modest this year, at around 1.6 per cent. According to forecasts, it should grow by 2.5 per cent in 2013.
Slower growth of the domestic economy will affect price trends in the direction favourable to consumers. Owing to the weakening of external pressure, it is forecasted that inflation this year, compared to last year, will decline in half – to 2.1 per cent. Next year, with the acceleration of the economic growth, inflation should make up 2.4 per cent.
More information about the Bank of Lithuania forecasts is available on its website.