News in English

2013.11.28 10:44

Bank of Lithuania: Economic growth is spurred by consumption and investments

DELFI|The Lithuania Tribune2013.11.28 10:44

 This year’s increasing domestic demand – private consumption and investment – more rapidly than was expected is compensating the decreasing influence of export, reports the Bank of Lithuania.

 This year’s increasing domestic demand – private consumption and investment – more rapidly than was expected is compensating the decreasing influence of export, reports the Bank of Lithuania.

As a result, the Bank of Lithuania adheres to the previous GDP growth projections. Economic development is favourable to Lithuania for meeting the euro adoption criteria next spring.

The Bank of Lithuania’s economists provide that this year the country’s economy will grow by 2.8 per cent, while next year – 3.5 per cent. Economic growth is mostly driven by domestic demand – especially rapid growth of consumption. Its growth projection was increased by 1.4 percentage points, to 4.3 per cent.

“Although consumption and investment are recovering, Lithuania’s economy is still rather vulnerable, due to slow growth in the euro area and unpredictable economic policy in the East. Also unhelpful is the fact that critical social, economic, and public administration reforms essentially are not performed,” said Raimondas Kuodis, Deputy Chairman of the Board.

It is projected that this year investments will increase by 7.8 per cent. The need for investment is being felt particularly in industry, where the production capacity utilisation rate continues to rise and has surpassed the average level for this indicator.

The overall development of investment should be noticeably affected by general government investment as well. For some time they did not increase, but if their investment costs will be as is specified by the 2013-2015 State Investment Programme, then these investments will increase.

According to the Bank, the newest data shows that export is larger than a year ago; however, the expansion of export is currently at its slowest since the start of economic recovery in 2010. This was impacted by the real GDP which in the main export partners grew less than last year. Of course, the effect of last year’s record-breaking harvest on the growth of the country’s export has already faded.

The consumer-friendly raw material price trends and limited impact of domestic factors on prices allow for the same inflation projections as previously – 1.3 per cent this year and 1.5 per cent next year, the Bank of Lithuania further informs.

“Price developments and general economic development is favourable for us to meet the euro adoption criteria next spring. However, the budget deficit ratio, close to the threshold of 3 per cent, raises some concerns. Without a reserve for compliance with these criteria, it is important to pay particular attention to the discipline of public finances,” said Rūta Rodzko, Director of the Economic and Financial Stability Service.