"Owing to a slower global economic development, lower economic growth is projected in the main trade partners of Lithuania, whereas confidence indicators in Lithuania and foreign countries are also deteriorating in the context of uncertainty related to debt problems in some eurozone countries. Such situation dampens the expectations of the Lithuanian households and enterprises, limits investment plans of enterprises, constrains employment growth and strengthens household saving," Mindaugas Leika, the director of the central bank's Economics Department said in a press release on Thursday.
The central bank forecast last November that the country's GDP would grow by 3.5 percent in 2012. It did not release its growth projections for 2013 at that time.
Meanwhile, the European Commission forecasts that Lithuania's gross domestic product will grow by 2.3 percent this year, down from its 3.4 percent estimate last autumn.
"The worsened global economic outlook and persistent tensions in the world financial markets are now expected to slow Lithuania's economy more markedly than had been expected at the time of the autumn 2011 forecast," the EU's executive body said in its latest forecasts released on Thursday.
Despite the downward revision, Lithuania's economy is expected to expand at the EU's second-fastest rate this year after Poland's anticipated 2.5 percent growth.
Latvia's GDP should grow at the third-fastest rate of 2.1 percent. The biggest economic contraction is forecast for financially troubled Greece, at 4.4 percent.
The Commission forecasts that 17 countries will post GDP growth and nine will see their economies contract.
Inflation in Lithuania should ease to 2.6 percent this year, it said.
Still among first in Europe
Lithuania’s economic growth will be among fastest across the European Union (EU) in 2012, despite lowered forecasts resulting from worse outlook for export markets and slowdown in the growth of domestic demand.
“Lithuania’s economic growth should be among fastest across the European Union – according to current forecasts by the European Commission, faster growth is only projected in Poland,” Mindaugas Leika, director of the central bank’s Economics Department, said in an interview to the Lithuanian Radio on Thursday.
A slowdown in economic growth would result from two key reasons, he said.
“One of them concerns slumming growth of global economy and situation in the eurozone, which affects export potential for our country’s exporters, and the second reason si to do with the slowdown in domestic demand and investment growth,” Leika said.
Meanwhile, Algirdas Šemeta, European Commissioner for Taxation and Customs Union, Audit and Anti-Fraud, stated that Lithuania and other Baltic countries were exemplary for other EU Member States.
“The Baltic countries are seen as an example to follow in Europe; they managed to recover in a comparatively short time and to regain leading positions in terms of economic growth,” Šemeta said in the Commission’s press release.
The euro zone was Lithuania’s key foreign trade partner, therefore the country’s economy was much affected by moods in the euro bloc, Leika said.
“Of course, our exporters have a possibility to turn to the East as growth in Eastern markets is impressive, but it is slowing down too,” he said adding that Lithuania’s consumers had become more cautious, the expectations had worsened, which might cause slowdown in the growth of retail trade.