Lithuania’s economy to face sustainability challenges

DNB economists forecast that Lithuania’s real gross domestic product (GDP) will grow 2.8 percent in 2014, while in the neighbouring Latvia and Estonia economic growth will be slower this year: 2.4 percent and 1.7 percent respectively, the bank said in a statement.

Lithuanian economic growth this year was powered by a strong burst in domestic demand, i.e., consumption and investments were growing faster. The environment was rather benign: recovering corporate profitability, rising salaries, low inflation, increasing individual purchasing power, low interest in the market, and positive Euro introduction effect, which has already reduced the country’s borrowing rates. Meanwhile, some domestic activities in Latvia and Estonia have run out of steam this year.

DNB analysts presented the Baltic Economic Outlook on Tuesday. They forecast that Lithuanian GDP growth in 2015 will be slightly slower at 2.6 percent. The economic growth forecast in Latvia and Estonia makes 2.5 percent and 2 percent respectively.

“Lithuania’s domestic market is shallow with limited growth potential, thus we are very much dependent on exports. But it is obvious that gaining momentum in the export growth will not be easy due to the complicated situation in Lithuania’s key markets, while capturing new markets takes time. The investment processes, which supported the growth this year, are very sensitive to business expectations and the ongoing uncertainty is not helpful here either. Therefore, next year we will see more moderate Lithuanian economic growth,”says Indrė Genytė-Pikčienė, DNB bank’s chief analyst.