Central bank warns about slower than expected economic growth in Lithuania

“Both the country’s domestic economy and export, particularly due to trade restrictions with Russia, will grow slower next year than was projected before. Even though the economy’s growth will still be rather large, both the state and businesses, in planning income, will have to retain a healthy sense of caution,” says Raimondas Kuodis, Deputy Chairman of the Board of the Bank of Lithuania.

The import restrictions introduced by Russia in August significantly impacted export of Lithuania’s food products: three months after the introduction of these restrictions it decreased by half. Although food product enterprises found alternative markets and began to export to other countries, this export growth was insufficient for compensating the whole recession of export to Russia. The slower-than-projected export increase risk is related to the economic growth projections in the euro area – Lithuania’s most important foreign trade partner. Therefore, the 2015 growth projection for goods and services, compared to projections in the autumn, was decreased by 0.9 p.p. – to 4.4 percent.

Poorer foreign trade trends are currently offset by growing domestic demand, especially rapidly growing private consumption and the improving situation in the job market. It is projected that next year consumption will increase by 3.6 percent (the same was projected in September), while the unemployment level will decrease to 9.7 percent (September projection – 9.9 percent).

A positive impact on consumption and increase in resident buying power was had by the recent price change trends that were favourable for consumers.

“Global prices of commodities, particularly the rapidly dropping price of oil and low inflation in the euro area allow us to believe that in Lithuania prices will increase at a slower rate than projected,” says Gediminas Simkus, Director of the Economics and Financial Stability Service of the Bank of Lithuania.

The average annual inflation projection for 2015, compared to earlier projections, was decreased by 0.3 p.p. to 0.9 percent.