With the slowdown in the exceptional growth of export, the country’s economic expansion will depend more on domestic demand
The prices rising less and increased wages allow for forecasts of growth in domestic demand, which in the nearest future will be an important factor of economic expansion, as is projected by the Bank of Lithuania. The expansion of net export, up till now the most important economic incentive, should slow down, while if investments still do not recover, the national economy will grow slower than expected.
In 2013 the growth of the gross domestic product (GDP) was projected to be less by 0.3 percentage points — 2.8 per cent. Next year economic expansion should accelerate to 3.5 per cent.
“The country’s economy is growing less than expected, and this, first of all, is related to the decrease in investments,” says Raimondas Kuodis, Deputy Chairman of the Board.
According to him, the total investment decline was due to smaller state investments. If part of these expenses would be transferred to 2013, the net domestic economic investment should stabilize.
Nevertheless, domestic demand, covering consumption and investments, will be an important factor in net GDP growth. Export, which till now has grown rapidly, is expected to grow slower due to weak external demand and the depletion of last year’s harvest’s reserves.
Economists at the Bank of Lithuania significantly (by 0.4 percentage points — to 2%) decreased the inflation measure projected for 2013. If global price trends continue to be favourable, it can be expected that inflation will be significantly less than in the past few years.
“Weakening of price growth and the increased minimum wage are important factors that stimulate private consumption, however, their effect will be dampened by the decrease in the growth of employment,” says Rūta Rodzko, Director of the Economic and Financial Stability Service.
Since future prospects are rather uncertain, a clear improvement in the situation of the labour market isn’t expected in the near future. The average annual unemployment rate this year should amount to 11.6 per cent, while next year it should be 10.1 per cent.