Tepid demand weighs on recovery

VILNIUS - Lithuania’s central bank lowered its forecast for economic growth next year because of weak domestic demand and “tensions” in financial markets stemming from the Greek fiscal crisis, reports Bloomberg. The bank expects that output will probably expand 3.1 percent in 2011, compared with a Feb. 11 forecast of a 3.4 percent rise. GDP will rise 0.5 percent this year, it said, reiterating its previous prediction.

The Baltic nation’s recovery was hampered in the first quarter by a harsh winter and the closure of its only electricity supplier, the Ignalina nuclear power plant, which pushed up energy costs for households and industry. The government is hoping for an export-driven recovery as domestic demand remains weak. Overseas sales are growing faster than it expected and may reach pre-crisis levels this year, said Finance Minister Ingrida Simonyte.

Exports grew 6.3 percent through the first two months of this year, driven by exports of fuels from Orlen Lietuva, plastics and wood. Foreign sales will probably expand 7.1 percent this year from 2009, the central bank said.
Still, falling wages, growing unemployment and government austerity measures are curbing consumer demand, with retail sales falling an annual 12.9 percent in the first quarter. Domestic demand is expected to remain weak in 2010, with consumption shrinking 7.9 percent, the central bank said.