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2014.05.20 11:29

Will Russian clouds darken Lithuania’s economic forecast?

Audra Šeputytė | DELFI | The Lithuania Tribune2014.05.20 11:29

Clouds cast over the Russian economy after its conflicts with Ukraine are casting gloomy shadows over the projected economic development of Russia’s neighbors, said the Bank of Lithuania.

 Clouds cast over the Russian economy after its conflicts with Ukraine are casting gloomy shadows over the projected economic development of Russia’s neighbors, said the Bank of Lithuania.

Lithuania’s gross domestic product (GDP) growth is anticipated to be 3.3 percent in 2014 with only 3.6 percent in 2015, a decline of .3 and .2 percent respectively compared to earlier predictions.

“Economic growth forecast have been slightly reduced mainly due to lower than expected export development. However, the high domestic demand will make Lithuania’s economy rates one of the greatest in Europe,” said Raimondas Kuodis, Deputy Chairman of the Board of the Bank of Lithuania.    

In 2014 the growth of Russian economy is forecasted to be close to zero. Russia accounts for approximately 20 percent of Lithuania’s good and service exports yet only a 30 percent of these exports originate in Lithuania with re-exports making up the remaining 70 percent.

According to Bank of Lithuania economists, a 1 percent  slowdown in Russia’s GDP growth results in a 0.3 percent decline in Lithuania’s economic growth.

Foreign trade projections in the east are offset by the growing economic development in European Union member states. The economic confidence indicators in the EU are improving. The domestic demand is increasing and favourable changes in the labour exchange are noticed. The main factor influencing the growth of Lithuania’s economy is domestic demand, especially with retail trade recovering thanks to an increase in real income.    

Price tendencies in Lithuania are expected to remain favourable with average annual inflation of just less than one percent.

“As the inflation is lower than the intended salary growth, the citizens’ purchasing power is increasing and this favourably affects the consumption,” said Rūta Rodzko, Director of  Economics and Financial Stability Service at the Bank of Lithuania.

According to Bank of Lithuania projections, the rise in salaries in 2013 due to the increase of minimum wage this year is likely to continue to rise moderately by 3.6 percent.