Lithuania’s economy grew by only 1.6% in 2016 with plummeting demand for its exports from outside the EU far outweighing the positive growth in domestic demand, according to the Commission.
However, the Commission sees economic growth hitting 3.4% in 2017 with unemployment falling to 7.2% by the end of 2017. The unemployment rate in Lithuania was 9% in 2015 and is predicted to fall to 8% this year.
A surge in EU fund disbursements fuelled rapid investment growth in 2015 while at the same time increasing competition for labour ensured robust wage growth. Negative inflation, the commission said, driven by falling energy and food prices, supported real disposable incomes.
“Growth is expected to strengthen in 2016 as private consumption remains strong and exports pick up. A temporary decline in EU fund disbursements is expected to slow down investment growth in 2016 before pickup up in 2017,” said the Commission
“As the labour market continues to tighten, wage growth is set to accelerate lifting inflation in 2016 despite the continuing fall in energy prices. The improvement in public finances is set to pause until 2017,” it said.
Growing demand from the EU is forecast to drive export growth in 2016 despite a drag from the continuing recession in Russia and other CIS countries. As the EU recovery strengthens the Commission expects Lithuania’s export growth to accelerate in 2017 and receive a further boost once demand from non-EU markets resumes growing.
Solid domestic demand is expected to keep import growth not far behind. While job creation is expected to slow down considerably in 2016, a shrinking labour force due to net emigration and population ageing will ensure a falling unemployment rate. This in turn is about to add further fuel to the rapid wage growth
Rising real disposable incomes on the back of wage growth and low inflation is set to ensure that consumption continues to grow solidly in 2016
The general government deficit is forecast to increase to 1.2% of GDP in 2016 in line with the government’s target.