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Economic development slowdown for Lithuania

  • 2006-11-29
  • From wire reports
VILNIUS - Lithuania will retain its fast economic development in the near future, however growth will slow down over the next three years, the Finance Ministry predicted on Nov. 24. The rise in Gross Domestic Product may reach 7.8 percent in 2006, while in 2007 growth will slow down to 6.3 percent, in 2008 to 5.3 percent, and in 2009 to 4.5 percent, the ministry reported.

In 2006-2008 soaring energy costs will affect Lithuania's inflation. Natural gas, which is primarily imported from Russia, will surge in price more than twofold by 2008 when compared with the baseline of 2005, the report shows.
In addition, commitments to the European Union to raise excise duties, compensate residential deposits and real estate, as well as the rise in average wages will also exacerbate inflation.

According to the ministry's projections, a rise in the price of natural gas will contribute some 0.9 percentage points to Lithuania's 2006 inflation rate, while in 2007 the contribution will be about 1.7 percent. These statistics mean a 1.3 percent rise in heating costs and 0.4 percent rise in the price of gas used by households.
The ministry is still projecting that inflation will decline and stabilize in 2009 when Lithuania's compliance with the Maastricht criteria will again be measured. The Baltic state just missed the inflation criteria to join the eurozone in 2006.
According to predictions, the annual inflation average should reach 3.9 percent in 2006, and should rise to 4.7 percent in 2007. In 2008, the rate should drop to 3.4 percent, and to 3.1 percent in 2009.

The inflation rate might sink below 2.8 percent in 2009 if Parliament approves additional measures, which are then implemented effectively and continuously.
Average monthly wages are expected to grow, reaching 1,991 litas (577 euros) in 2009, from 1,290 litas in 2005, a growth of 35.3 percent.

The unemployment rate is expected to decrease to 4.9 percent in 2009, down from 8.3 percent in 2005 due to growing demand in the labor market.