The European Commission has revised upwards its Lithuanian GDP growth forecasts to 3.1% for 2018 and 2.7% for 2019. The forecasts released on Thursday are up from the Commission’s estimates of 2.9% and 2.6%, respectively, published in February. The Latvian economy is expected to grow by 3.3% this year. Estonia’s growth projected at 3.7% and 2.8%.
Valdis Dombrovskis, the European Commission’s Vice President for the Euro and Social Dialogue, told LETA that investment will continue to grow as EU funding flows into the economy and strong wage growth and moderate employment growth will ensure a steady rise of household consumption.
“Yet compared with the previous forecast, Latvia’s economic growth forecast has been slightly downgraded. This is related to problems in the banking sector and a slowdown in rail freight transportation through Latvia. This and next year Latvia’s budget deficit will slightly exceed 1% of GDP. By comparison, a balanced budget or a small surplus is being projected in Estonia and Lithuania,” Dombrovskis said.
The European Commission indicates in its Spring 2018 Economic Forecast that growth rates for the EU and the euro area beat expectations in 2017 to reach a 10-year high at 2.4%. Growth is set to remain strong in 2018 and ease only slightly in 2019, with growth of 2.3% and 2.0% respectively in both the EU and the euro area.
The EU’s executive body predicts in its Spring 2018 Economic Forecast that Lithuania’s GDP growth rate will be the lowest in the Baltic region, with Latvia’s economy expected to expand at an annual rate of 3.3% in the next two years and Estonia’s growth projected at 3.7% and 2.8%.
The Commission says that Lithuania’s economic growth last year was pushed to 3.8% by “a strong rebound in investment, flourishing exports, and the continuing strength of private consumption”. “While investment activity is expected to stay strong, export growth will ease this year and next, slowing GDP growth to 3.1% in 2018 and 2.7% in 2019,” it added.
Lithuania’s EU-harmonized average annual inflation is forecast to moderate to 2.7% this year “after reaching a six-year high and peaking 3.7% in 2017” and to decelerate further to 2.3% in 2019. “The slowdown partly reflects the fading effects of significant excise duties hikes in 2017,” the Commission said.
Lithuania’s unemployment rate is expected to decline to 6.8% this year, from 7.1% in 2017, and to ease further to 6.7% next year. Average wages are projected to grow by 6.6% this year and by another 6% next year.
In 2017, real GDP growth reached 2.4% in the EU and in the euro area as the economy moved into higher gear. Growth was supported by high consumer and business confidence, stronger global growth, low financing costs, healthier private sector balance sheets and brighter labor market conditions. While short-term indicators suggest a cooling of activity in early 2018, this looks likely to be partly temporary.
The pace of growth is expected to remain robust on the back of sustained consumption and strong exports and investment. Both the EU and the euro area are forecast to grow by 2.3% this year. Growth in both areas is projected to ease to 2.0% in 2019 as bottlenecks become more apparent in some countries and sectors, monetary policy is adjusted to circumstances and global trade growth calms somewhat.
Private consumption remains strong, while exports and investment have increased. Unemployment continues to fall and is now around pre-crisis levels. In the EU, unemployment is set to continue to decline, from 7.6% in 2017 to 7.1% in 2018 and 6.7% in 2019. Unemployment in the euro area is forecast to fall from 9.1% in 2017 to 8.4% in 2018 and 7.9% in 2019. The number of people in work in the euro area is now at its highest since the introduction of the euro, but some labor-market slack remains in the euro area. While in certain Member States unemployment is still high, in others, job vacancies are already getting harder to fill.
However, the economy is more exposed to external risk factors, which have strengthened and become more negative. Robust growth is facilitating a further reduction in government deficit and debt levels and an improvement in labor market conditions. The aggregate deficit for the euro area is now less than 1% of GDP and is forecast to fall under 3% in all euro area Member States this year.
Consumer price inflation weakened in the first quarter of this year but is expected to pick up slightly in the coming quarters, partly due to oil prices that have recently increased. Underlying price pressures are also building as a result of tighter labor markets and faster wage growth in many Member States. Overall, inflation in the euro area is forecast to remain the same in 2018 as in 2017 at 1.5% and then rise to 1.6% in 2019. In the EU, the same pattern is expected, but with inflation forecast to continue at 1.7% this year before rising to 1.8% in 2019.
The aggregate euro area government budget deficit and public debt both fell as%ages of GDP in 2017, helped by strong economic growth and low interest rates. With Member States’ budgets benefitting from the effects of improving labor market conditions, including through lower social benefit payments, 2018 is set to be the first year since the start of the Economic and Monetary Union in which all governments manage budget deficits of less than 3% of GDP, as referred to in the Treaty.
The aggregate general government deficit of the euro area is now forecast to fall to 0.7% of GDP in 2018 and 0.6% in 2019. In the EU, the aggregate deficit is forecast to be at 0.8% in 2018 and 2019. The euro area’s debt-to-GDP ratio is forecast to fall to 84.1% in 2019, with declines projected for almost all member states.
