DNB analysts have raised Lithuanian GDP growth forecast for 2012 from 2.5 per cent to 3 per cent. We have also increased end-of-period inflation forecast from 3 per cent to 3.2 per cent in 2012. We believe that even given current negative macroeconomic outlook for the Euro zone Baltic countries will be able to achieve 3 per cent GDP growth in 2012. This is because Lithuania’s trade partners are less affected by European debt crisis. We believe that growth of Lithuanian exports will still slow down to 6 per cent in 2012 compared to c. 13 per cent in 2011. Private consumption and imports should expand at the same pace in 2012 as in 2011. In the light of this scenario 3 per cent GDP growth is achievable.
We are increasing country’s inflation forecast as a result of persistently high oil prices. Inflation in Lithuania might accelerate further if political tension increases in the Middle East. On the other hand, inflation might still surprise positively should the grain prices in the world markets decrease this August. This might be caused by the historically highest world’s grain harvest expected this year.
In our latest Baltic Rim Economies report we also emphasize that Lithuania needs more investments in order to achieve a sustainable long-term growth. We note that at the beginning of 2011 foreign direct investments (FDI) in Lithuania averaged EUR3800 per capita while the respective rate stood at EUR9000 in Estonia.
Lithuania is also behind its Baltic neighbors and the EU average with regards to the amount of general fixed investments in the country. For instance, in the first three quarters of 2011 investments in machinery and equipment in Lithuania made up 5.3 per cent of GDP while the same figure stood at 11.3 per cent in Latvia and 9.7 per cent in Estonia. In the same period investments in EU stood at 6.4 per cent of GDP on average. Lower investment today leads to slower economic growth in the long term.
Please also find attached our Baltic Rim Economies report.
Best regards,
Rokas Bancevičius
Mindaugas Jurgelis
Titas Budrys
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