DNB warns of Russian economic slowdown but forecasts stable growth in Lithuania

"We cannot ignore what is happening around us. Lithuania is a small boat in the sea of global economy," Rokas Bancevičius, DNB Bankas analyst, said on Thursday while presenting the bank's latest economic outlook report.

While falling oil prices are among the few positive external factors for Lithuania, they affect Russia, which is Lithuania's export partner, the analyst said.

"We expect oil prices to stay at a similar level. That means that Russia, a country that is important to us, may face problems. If we speak about a confidence crisis in the eurozone, we may as well start speaking about such a crisis in Russia. Capital flows have been negative in Russian in recent years," he said.

"Russia is in a potentially very difficult situation. There are several possible scenarios, including both soft landing and hard landing," Rimantas Rudzkis, a financial analyst who advises DNB, said during the presentation. He said that there are bad scenarios for the EU and the US as well.

"The Lithuanian economy is growing and is managing quite well, but these common global challenges are undoubtedly having an impact on Lithuania," said Vygintas Bubnys, deputy chairman of the bank's management board.

DNB Bankas also sticks to its 3 percent GDP growth forecast for 2013 and expects the economy to expand at the same rate in 2014.

The inflation forecasts are also unchanged at 3.2 percent for 2012, 2.7 percent for 2013 and 2.5 percent for 2014. Average monthly wages are expected to increase by 4 percent in each of the three years.

Unemployment should reach 12 percent at the end of this year and ease somewhat to 10.5 percent in 2013 and 9.5 percent in 2014. This is up from the previous projections of 10 percent for 2013 and 8 percent for 2014.

Lithuania's current account deficit is projected at 2.5 percent of GDP this year and at 3 percent in 2013 and 2014 each.

The country's public finance, or fiscal, deficit is expected to reach 3.5 percent of GDP this year, narrow to 3 percent next year and stay at this level in 2014.