OREANDA-NEWS. March 21, 2016. The economists at the Bank of Lithuania reduced the GDP growth forecast and project that this year the domestic economy will grow by 2.6 per cent, i.e. 0.3 p.p. less than expected in December 2015. Now, however, the projected growth rate is 1 p.p. higher than last year. For the first time, the forecast for 2017 is also presented — next year, the growth of economy should accelerate to 3.4 per cent.

‘The fall in unemployment, increase in wages and more abundant corporate investments will give impetus for more rapid growth of the economy. Nonetheless, foreign trade partners suppress greater optimism: the economic outlook for Russia is gloomy, economic growth in the euro area is slower than expected, and uncertainty over the growth outlook for the US and developing countries increased; as a result, the latest economic development projections are more cautious than reported previously’, said Raimondas Kuodis, Deputy Chairman of the Board of the Bank of Lithuania.

The main reason for the reduction of the projection is the slowdown in global economic development. It is estimated that last year the global economy grew by approximately 3 per cent — its most modest growth since 2010, when the recovery after the global financial crisis started. Development of emerging market and developing economies decelerated particularly, and forecasts show that the Russian economy will continue to suffer from recession throughout this year as well. Hence, the contribution of exports to Lithuania’s economic growth will also be more modest than expected.

So far, however, lower development of the exporting sector has no evident impact on domestic demand, which remains the major driving force behind the growth of the domestic economy. Having operated within the limits of their production capacity for quite some time, enterprises now invest in development; investments are also driven by the property market and the use of funds from EU funds.

Enterprises continue to increase employment and the unemployment rate is declining more rapidly than projected. This, together with the increase of the minimum monthly wage, results in overall wage growth, which should amount to 5.3 per cent this year. Labour income, increasing more rapidly than prices, enables households to consume more.

‘In January of this year, inflation in Lithuania was positive, yet low. However, recently, energy commodity prices dropped much more than we expected, hence we significantly reduced the inflation projection for this year’, said Gediminas ?imkus, Director of the Economics and Financial Stability Service of the Bank of Lithuania.

According to the latest assessments, average annual inflation will amount to 0.5 per cent in 2016 (the previous projection was 1.4%).