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‘Economic development this year is weaker than expected, and its pace might be slowed down by the UK’s decision to leave the EU. Uncertainty in the UK and its trading partners is already much more pronounced, which will put a lid on investment and consumption. It is projected that advanced European economies, which are of high importance to domestic exporters, will experience the most adverse impact. Hence, the demand of our goods and services in those countries will scale down as well,’ said Aurelijus Dabušinskas, Director of the Economics Department of the Bank of Lithuania.

According to the estimations of the Bank of Lithuania experts, uncertainty fuelled by the results of the UK referendum might pull down the Lithuanian real GDP growth rate by 0.1 p.p. this year, and by 0.2 p.p. next year. According to the latest Bank of Lithuania projections, Lithuania’s real GDP will expand by 2.3% (previous projection — 2.6%) in 2016 and by 2.9% in 2017 (3.3%).

Last year, Lithuania’s economic growth stood at 1.6%. In the first half-year of 2016, the economy saw a year-on-year increase of 2.4%. The Bank of Lithuania economists indicate that the more rapid growth recorded this year is, first of all, fuelled by the recovery in exports: the transport sector, which suffered hefty losses when exports to Russia fell, is currently expanding; the industry, which is known to export two thirds of its output, is also on an upward climb. Nonetheless, export growth might follow a less favourable path in the remaining months of this year. Even though it is projected that exports will grow next year, the 2017 growth outlook for this sector has been revised significantly down given the already-mentioned poorer state of international economy. It also has some implications on the projected investment dynamics — the 2017 projection for investments was also downgraded.

The Bank of Lithuania economists see lower use of EU funds as one of the major factors limiting economic growth. Funds from the previous (2007–2013) EU financial perspective are no longer used, whereas funds from the current (2014–2020) EU financial perspective so far are only used sparsely. All this weighs on the construction sector (the volume of construction works is reducing), consequently dampening the overall economic growth this year.

As the external environment is getting less favourable, domestic factors, namely the improving situation in the labour market, rising wages and a stable growth of consumption, will push the Lithuanian economy forward.

Currently advances in wages have been the highest since the start of economic recovery. It is projected to increase by 6.8% this year and by another 5.6% next year.

‘The rise in income is primarily underpinned by a lack of adequately qualified staff. Currently, the unemployment rate among qualified persons still amounts to a meagre 6.5%. The rise in minimum wage also bolsters the growth in wages. Even though the search for new employees is complicated, total employment is consistently rising’, said A. Dabušinskas.

Increasing household income and declining unemployment will propel private consumption. It is projected that in 2016 its levels will grow by 4.3%, in 2017 — by 3.9%.

The overall price level of the first seven months of this year exceeded the year-earlier figure by a meagre 0.5%. Current estimations suggest that in the remaining months of the year it will rise marginally. Inflation will stand at 0.7% in 2016. In 2017 inflation rates should pick up, as so far it is projected that next year global prices for energy commodities will exceed those recorded this year.