15. LITHUANIA
Domestic demand ensures steady growth
Growth remained strong in 2013 and is set to continue at a steady pace in 2014 and 2015 driven by
strong domestic demand. Unemployment is forecast to decline, but remain high, while inflation is set to
slow down further this year before picking up moderately in 2015.
Domestic demand gradually replaced net
exports as the main growth engine in 2013
Robust GDP growth continued in 2013 and
reached 3.3%. While in the first quarter net exports
had been the main growth driver, domestic demand
took over in the second quarter. Substantial wage
increases, low inflation, falling unemployment and
strong confidence indicators boosted consumption.
Private investment soared on the back of high
capacity utilisation rates and positive sentiment,
although some of it was exceptional, connected to
regulatory changes in the transport sector. Strong
growth in public investment was supported by
Lithuania’s EU Presidency.
pps.
Graph II.15.1: Lithuania - Real GDP growth and
contributions, output gap
% of pot. GDP
10
forecast
0
5
0
-10
-5
-20
-10
-30
-15
08
09
10
11
12
13
14
15
Output gap (rhs)
Dom. demand, excl. invent.
Inventories
Net exports
Real GDP (y-o-y%)
Robust growth in 2014-15, but downside risks
have increased
Looking ahead, real GDP is forecast to grow by
3.3% in 2014 and 3.7% in 2015. The ongoing
labour market recovery, accelerating wage growth
and low inflation are expected to further boost
household disposable income and private
consumption. At the same time, investment is set
to continue growing robustly as interest rates are
low and companies have significant financial
reserves. Moreover, EU co-financed projects will
continue to support public investment over the
forecast horizon.
74
Risks to the growth forecast are tilted to the
downside. Particularly, a further slowdown in
Russia and the wider CIS region might hamper
trade and could affect sentiment with possible
impacts on domestic demand. On the upside,
stronger-than-expected credit growth could boost
private consumption and investment.
Negative net exports seen dampening growth
Export growth is set to be subdued in 2014 before
picking up as the external environment improves.
Since the second half of 2013 exports have been
dragged down by the fertilizer and refined
petroleum product industries.
Import growth has been fairly stable and is
expected to pick up as private consumption and
investment
grow
robustly.
Overall,
the
contribution of net exports to growth is expected to
remain negative over the forecast horizon. After a
surplus in 2013, the current account is expected to
deteriorate moderately towards a small deficit in
2014 and 2015.
Inflation is set to remain low but pick up slightly
towards the end of the forecast horizon
HICP Inflation slowed to 1.2% in 2013, due to
exceptionally weak energy and food price
developments. This trend is forecast to continue in
early 2014, with a slight pick-up expected
thereafter. Inflation in the service sector is likely to
accelerate on the back of sustained wage growth,
while energy and food inflation are set to remain
below average levels. Overall, HICP is forecast to
grow by 1.0% in 2014 and 1.8% in 2015.
Credit growth to return in the financial sector
Private sector deposits grew robustly in 2013,
while credit remained flat despite a pick-up in
mortgage lending. However, households and
enterprises were able to finance a large amount of
investments from their own resources. Latest
surveys indicate that banks intend to ease lending
standards and that credit demand is increasing.
Member States, Lithuania
In its two judgements the constitutional court ruled
that some cuts in pensions and public wages
undertaken during the crisis were not in line with
the constitution and repayments would be required.
In 2014, the Lithuanian government intends to start
compensating for the cut pensions and has
prepared a draft law. If enacted, this would
increase the 2014 deficit by 0.4 pp. of GDP to
2.5% of GDP. No decision has been taken on when
and how to pay the remaining pension part as well
as the compensation for cuts in public wages, thus
risk remains for the 2015 deficit.
Fiscal consolidation is advancing
In 2013, the government reduced the general
deficit to 2.2% of GDP, below the initially planned
level of 2.9%. Overall, tax revenues met
expectations, as a strong collection of direct taxes
compensated for a shortfall in indirect taxes. The
central government spent less than budgeted, local
governments recorded a lower-than-planned deficit
and non-tax revenues turned out higher than
expected.
The deficit is forecast to decrease to 2.1% of GDP
in 2014. On the one hand, tax revenues are
expected to be supported by the cyclical
conditions, while expenditure growth is limited.
On the other hand, an increase in non-taxable
personal income threshold is set to be only
partially compensated by an increase in excise
taxes on alcohol and tobacco products in 2014. For
2015, under a no-policy-change assumption, the
general government deficit is set to decrease to
1.6% of GDP mainly on the back of limited
expenditure growth.
The structural deficit is estimated to have
decreased from 2.9% of GDP in 2012 to 2.1% in
2013. It is set to continue decreasing further to
1.9% in 2014 before falling to 1.3% in 2015.
General government debt has decreased from
40.5% of GDP in 2012 to 39.4% in 2013. It is
projected to increase to 41.8% in 2014 due to prefinancing of the 2015 bond redemption before
falling back to 41.4% in 2015.
Table II.15.1:
Main features of country forecast - LITHUANIA
2012
GDP
Private Consumption
Public Consumption
Gross fixed capital formation
of which: equipment
Exports (goods and services)
Imports (goods and services)
GNI (GDP deflator)
Contribution to GDP growth:
Annual percentage change
bn LTL Curr. prices
% GDP
94-09
2010
2011
2012
2013
2014
2015
113.7
100.0
3.6
1.6
6.0
3.7
3.3
3.3
3.7
72.0
63.3
-
-3.6
4.8
3.9
4.8
3.9
4.3
20.0
17.6
-
-3.4
0.3
0.6
1.8
1.6
1.7
18.9
16.6
-
1.9
20.7
-3.6
12.8
6.5
6.9
6.1
5.4
-
22.2
38.1
-4.5
21.8
9.0
9.8
95.5
83.9
-
17.4
14.1
11.8
9.5
6.3
6.6
94.5
83.1
-
17.9
13.7
6.1
9.8
7.1
7.4
110.1
96.8
-
-2.2
4.2
4.2
2.8
4.8
3.6
-
-2.9
6.5
1.9
5.5
3.9
4.3
-
5.1
-0.5
-2.5
-2.0
0.0
0.0
-0.6
Domestic demand
Inventories
Net exports
Employment
Unemployment rate (a)
Compensation of employees / head
Unit labour costs whole economy
Real unit labour cost
Saving rate of households (b)
GDP deflator
Harmonised index of consumer prices
Terms of trade goods
Trade balance (c)
Current-account balance (c)
Net lending (+) or borrowing (-) vis-a-vis ROW (c)
General government balance (c)
Cyclically-adjusted budget balance (c)
Structural budget balance (c)
General government gross debt (c)
-
-0.6
0.0
4.2
-0.2
-0.6
-0.8
-11.9
0.5
1.8
1.3
1.4
1.3
10.2
17.8
15.4
13.4
11.8
10.6
9.7
4.6
16.3
7.2
6.3
3.8
4.8
3.3
11.4
-7.0
0.7
1.9
2.8
1.4
2.0
1.6
-9.1
-4.4
-0.7
1.1
-0.2
-0.2
-
8.2
4.2
0.9
-
-
-
9.5
2.3
5.4
2.6
1.7
1.6
2.3
-
1.2
4.1
3.2
1.2
1.0
1.8
-
1.4
-0.6
-1.0
0.0
0.0
0.0
-10.5
-4.8
-5.8
-2.8
-3.0
-3.5
-4.2
-
-0.4
-3.9
-1.1
1.3
-0.8
-1.5
-
3.4
-0.6
1.9
2.5
1.0
0.3
-3.1
-7.2
-5.5
-3.2
-2.2
-2.1
-1.6
-
-4.7
-4.4
-2.9 -
-1.9
-2.0
-1.5
-
-4.7
-4.4
-2.9 -
-2.1
-1.9
-1.3
-
37.8
38.3
40.5
39.4
41.8
41.4
(a) Eurostat definition. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
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