Emigration to curb Lithuanian growth

VILNIUS - Lithuania’s growth rate will surge to 4.0 and 4.5 percent in 2011 and 2012, respectively, writes SEB in its March 2011 issue of Eastern European Outlook, reports ELTA. Exports will continue to drive growth, which will nevertheless become more broad-based as fiscal tightening softens this year. Emigration and growing labor shortages will hamper the upturn, the bank said.

According to SEB, economic conditions in Eastern Europe, including Central Europe, will strengthen in 2011-2012, although fiscal policies will be tightened moderately in many countries and global growth will level out. Strong, competitive exports will remain a key driving force this year.
The increase in broad inflation measures will culminate this year, except that in Estonia and Lithuania inflation will continue to accelerate in 2012, the SEB bank said.

“Painful austerity policies in the Baltics will soon fade away. In our assessment, these countries’ internal devaluations, including sharp pay cuts, are over. Private wages and salaries have been increasing again since late 2010. Latvia’s budget tightening will continue this year, but Lithuania’s fiscal policy will be more neutral. In Estonia we expect fiscal policy to be expansionary. Budgetary challenges still remain, however. Latvia and Lithuania are still running large budget deficits, and their governments’ ambition to bring the deficit down to a maximum of 3 percent of GDP in 2012 to prepare the way for eurozone accession in 2014 is in danger. Some further tightening may be required in Lithuania,” says Mikael Johansson, Head of Eastern Europe Research and chief editor of Eastern European Outlook.

“There will be a notable decline in unemployment, and wage cuts will be gradually replaced by wage rises. Lithuania’s economic growth in 2011-2012 will be, on average, rapid, despite risks, including rising inflation and the shrinking supply of the labor force due to emigration,” the senior analyst with SEB Bankas in Lithuania, Vilija Tauraite, said.