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Lithuania Business Forecast Report Q2 2008Published by: Business Monitor International Published: Apr. 7, 2008 - 40 Pages Table of Contents
AbstractGrowth Slowing, But Still StrongLithuania’s economy grew by a little less than expected in the final months of 2007 and is expectedto lose further momentum going into H208. Nevertheless, growth remains reasonably strong andthe cyclical downswing is not yet sufficiently well established to be able to brush aside concernsof a boom-bust scenario playing out in the next year or so. Aggregate demand at the end of 2007was above and growing faster than the economy’s supply potential, placing upward pressure ondomestic prices (including wages) and increasing external vulnerability through a yawning currentaccount deficit and rising external debt. BMI still expects the economy’s landing to be soft ratherthan hard, but downside risks are building, not just because of the benign neglect of policymakersbut also, and increasingly more so, because of uncertain prospects for the global economy andinternational financial system. In the political arena, the coalition government recently gained a parliamentary majority by addinga fifth party to its ranks. However, with elections approaching, this does not mean it is now morelikely to implement measures to cool the overheating economy. Indeed, it is more likely that themain parties will be drawn towards electioneering rather than reforming in the near term as theyseek to boost their flagging support ahead of polling day. On balance, tighter financial conditions, rising consumer prices, falling house prices and a gradualdecline in confidence should contribute to a steady reduction in real GDP growth in 2008-09. Weexpect the economy to expand by 6.5% in 2008, down from 8.8% in 2007, and by 5.0% in 2009. The inflation rate is now projected by BMI to average 8.4% in 2008, up from 5.7% in 2007, and tofall to 6.0% in 2009. The budget deficit is expected to narrow slightly in 2008 but fiscal policy willremain expansionary. The current account deficit is projected to narrow in 2008 on the expectation that domestic demandwill slow and export performance will remain reasonably robust. Non-oil export activity willbe adversely affected by a softening of demand in the EU and by a further appreciation of the realexchange rate; but exports of refined petroleum products will rebound as production is rampedup at the Mazeikiu refinery. Get Full Details About This Report >> |
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