National Audit Office of the Republic of Lithuania

Press Release


20/09/2019

Lithuania‘s economic growth is balanced but external risk factors remain important

The National Audit Office, implementing the functions of the budget policy monitoring institution (fiscal institution) assessed the Economic Development Scenario for 2019–2022 prepared by the Ministry of Finance and concluded it to be suitable for the preparation of the 2020 draft budget of the general government.

According to the fiscal institution, the Lithuania’s economic growth was balanced in the first half of 2019, as it was positively contributed by final consumption expenditure, investment and net export. As a result of the accelerated absorption of European Union financial support in the first half of 2019, investment in Lithuania has been growing at a faster pace than expected. The growth of the country’s average gross monthly wage remains a key factor in supporting the growth of private consumption expenditure. This is contributed by the optimistic consumer expectations, and a stable, slower than the growth of average gross monthly wage, inflation.

The observed intensification of the trade dispute between the United States and China, high political uncertainty in Europe, including Brexit, the slowdown of world economies, is likely to affect the growth of major euro area economies. The fiscal institution notes that the slowdown in the growth of the main Lithuania‘s export partners’ economies will stimulate the search for new export markets. Internal risks are mainly related to domestic demand and trends of labour market.

“In the context of an international uncertainty and a persistent negative external balance of risks, Lithuania’s growth has been faster than expected in the first half of 2019. This caused the upward revision of the growth of the Lithuania‘s economy in 2019. Household consumption and investment remain key drivers of GDP growth in the medium term“, – says advisor of the fiscal institution Jurga Rukšėnaitė and adds that in case of economic slowdown, the optimistic consumer expectations might also significantly deteriorate. This would encourage households to save and delay consumption for the future. If this risk occurred, domestic demand would slow down.

When the growth rate of labour productivity is slower than wages, a risk for the country’s competitiveness in international markets might occur. Following strong economic growth and having not found new long-term development opportunities, the country might be at risk of entering the ‘middle-income trap’. This phenomenon is discussed in the box of the report on the assessment of the Economic Development Scenario.

Updated heat map of Lithuania’s economy shows no significant changes in the first half of 2019. The tension in the labour market is decreasing, capacity utilization is at a high level, and inflation does not differ from multiannual average.

The Ministry of Finance has publicly announced Economic Development Scenario for 2019-2022 on 11 September. The Fiscal institution has submitted an opinion on the endorsement of this scenario to the Parliament (Seimas).

 

National Audit Office of the Republic of Lithuania
Pamėnkalnio str. 27, LT-01113 Vilnius
www.vkontrole.lt