Faster economic growth may be expected in 2016, DNB Lithuania analysts say

DNB bank presented its economic review of the Baltic States. The analysts forecast that Lithuania’s real GDP will grow by 2 percent in 2015. However, if conditions are favourable in foreign markets, the economy should grow by 3 percent in 2016.

Meanwhile Latvia’s economy this year is expected to grow the most, by 2.8 percent, while Estonia’s by 2 percent.

“This year Lithuania’s economy faced the biggest challenges since the end of the financial crisis in 2009. Under such conditions even moderate results of the first half of 2015 should be evaluated only positively. The first half of this year was particularly poor as Lithuanian exporters were hit the hardest during this period. Nonetheless, signs of faster recovery are already noticeable in the second half – business expectations are improving, while the results of retail trade turnover have shown that consumption is unabated. Among other good news is the falling unemployment level, stable growing wages and improving consumer expectations,” said Chief Economist at DNB bank, Jekaterina Rojaka.

Domestic consumption and investment will be the primary source of economic growth – retail trade in the second half will grow by approximately 5 percent, similar growth tendencies will be observed in 2016. On the other hand, striving to retain rapid rise of the purchasing power, increasingly more attention will have to be devoted to innovation and its promotion. So far Lithuania is behind its neighbours in this aspect.

Next, the average annual deflation will stand at 0.5 percent this year. The decrease of consumer prices was observed due to the significant fall in prices of energy resources and food products. In spite of this, DNB analysts forecast moderate 1.8 percent inflation growth in 2016.

DNB analysts project that the level of unemployment will drop to 9 percent. In spite of this tensions will remain in the labour market because the number of working-age population is declining, while some sectors face the lack of workforce. The situation in the labour market would be improved by a decisive education reform, creation of tax environment favourable to workforce and liberalisation of the labour market what would make labour relations more flexible.