Greek crisis threatens export recovery

VILNIUS - Lithuania’s government lowered its forecast for economic growth next year on weak domestic demand and as Europe’s sovereign-debt crisis risks undermining export growth, reports Bloomberg. GDP will probably expand 2.8 percent next year, compared with a February forecast of 3.2 percent, said the Finance Ministry on May 13. Output will rise an annual 4 percent or 5 percent in the second quarter of this year, with a 1.6 percent expansion for the full year.

The government has bet on an export-driven recovery after suffering the EU’s second-deepest recession that led to a 14.8 percent contraction last year. The fiscal crisis in the euro region, the destination for 65 percent of Lithuanian exports, is raising concern about European growth prospects and threatens to hurt Baltic exports. Projected budget cuts in the next two years will further weaken domestic demand, reducing economic growth to 1.2 percent in 2012, the Finance Ministry said.

Finance Minister Ingrida Simonyte said in a May 6 radio interview with Ziniu Radijas that she is “concerned” about the effect of the Greek crisis on Lithuanian borrowing costs and its growth outlook. “Any uncertainty, any turbulence in financial markets, any negative perception of countries with higher deficits is essentially a problem because this may increase interest rates,” she said.
Lithuania’s economic contraction slowed to 2.9 percent in the first quarter from 12.1 percent in the final three months of 2009.