Growth weakens on euro troubles

  • 2012-08-22
  • From wire reports

VILNIUS - As forecasts regarding Lithuania’s slower foreign trade expansion have materialized and consumers and producers continue to lack optimism, the Bank of Lithuania left the gross domestic product (GDP) growth forecasts for 2012 and 2013 basically unchanged, reports ELTA. The Bank’s analysts forecast that real GDP will grow by 3 percent this year and 3.4 percent next year (according to the May forecast, these figures were 3.0 and 3.5 percent, respectively).
“One of the main export markets for Lithuania, the euro area, is balancing on the edge of a downturn; therefore, the exports of our producers grow increasingly slower. We project that the demand for exported goods and services will grow slower in the nearest quarters. Domestic demand will continue to have relatively the largest impact on economic growth,” said Ruta Rodzko, director of economics and financial stability at the Bank.

However, she noted that private consumption, which stimulated economic growth last year and at the beginning of this year, is recently growing, though unevenly. Private consumption is projected to grow by 4.2 percent this year and by 2.8 percent next year (according to the May forecast, these figures were 4.6 percent and 3.1 percent, respectively).
“Stronger recovery of consumption is hindered by poorer consumer expectations, compared to last year. This stems from uncertainty surrounding the global economic situation and just a slow and unsteady recovery in Lithuania’s labor market,” said Rodzko.

In the opinion of the Bank’s economists, the assessment of the outlook for the country’s economic development will have a significant contribution on the development of the labor market, same as to investment in output growth.
If expectations of companies continue to be cautious, a strong breakthrough in the labor market can hardly be expected. It is projected that the number of employed will grow by 1.4 percent this year and by 1.5 percent next year (according to the May forecast, these figures were 1.1 percent and 1.4 percent, respectively), the central bank said.

Annual inflation is currently declining due to external factors; however, the impact of fuel prices, the same as other external factors, on inflation may be larger than expected over the projection period. Core inflation, which is related to the situation in the domestic market, is low and should not increase much. Inflation is projected to be 2.9 percent this year and 2.4 percent next year (according to the May forecast, these figures were 2.9 percent and 2.7 percent, respectively).