Analytics, Baltic, Inflation

The Bank of Lithuania forecasts that GDP, which last year increased 8.8%, this year will advance 9% instead of 6.6% growth predicted in April (in January, 8.1% was forecasted), while in 2009 GDP will increase 4.2% instead of 3.9% announced in April and 5.7 – in January.

The average annual inflation, according to the harmonised index of consumer prices (HICP), will be higher and this year will reach 11.8%, and 7.8% – in 2009. This is an increase of 2.0 and 1.5% respectively, compared to the forecast provided in April – 9.3 and 6.3%. Last year the average annual inflation, according to HICP, made up 5.8%.

The Bank of Lithuania concludes that tendencies of income growth and prices are less favourable than expected. Shake-ups on global finance markets have not almost touched the Lithuania"s financial system directly, however, because of the slowdown in the economy growth the risk of expansion of export rises. In the neighbouring Baltic countries the economy growth has slowed down much faster than expected. In the first quarter of this year the real annual growth of GDP in Estonia was the lowest over eight years – 0.1%, Latvian economy growth slowed down to 3.3%. Still the growth of Russia"s GDP remains rapid, so hopes regarding export are connected with this and Commonwealth of Independent States markets.

According to the forecaster, 2008-2009 inflation will be mostly influenced by increasing prices on raw materials; however the internal pressure for consumer prices has to decrease consistently. The possible greater causes of inflation than forecasted in April come true – food prices are growing much faster than expected, in May-June the global prices for oil in litas increased by almost 60% over the year. So the average annual inflation this year have to be a bit lower than 12%, while in 2009 the consistent fall of inflation is expected. Although the prices for food will remain high, but it is thought that the prices for raw materials of agriculture will not increase as in 2007, while prices for energy will continue to grow. The prices for imported gas and heating will increase because of increased prices for oil.