Roundup: Lithuania's GDP forecast lowered due to declining Russia exports

Swedbank, one of the leading commercial banks in Lithuania, on Tuesday revised downwards the country's GDP growth forecast to 2.3 percent in 2015 from the previous 3.3 percent estimated last November.

The bank expects the Lithuanian economy to accelerate to 3.5 percent in 2016, according to its macroeconomic outlook.

The downward revision in the annual GDP growth rate is due to continuing Lithuania's dependence on exports to Russia which has been seen as having a negative effect on the Baltic country's economy, the bank said.

"Despite political tensions, sanctions, embargo and the deterioration of Russia's economy, Lithuania managed to increase its exports to Russia last year," Nerijus Maciulis, Swedbank's chief economist, was quoted as saying by BNS news agency.

According to him, despite discussions that Lithuanian producers should divert their exports to other markets, it did not happen last year.

"We will feel the negative effects of this as soon as in 2015," Maciulis added.

Lithuanian exports to Russia increased by 6.5 percent in January to November last year, Swedbank noted. Thus, Russia's share in Lithuania's exports increased to 21.1 percent, to compare with 19.8 percent in January to November 2013. However, majority of exports to Russia are re-exports (85 percent).

"The depreciation of the Russian ruble by nearly a half and declining purchasing power in Russia will undermine export possibilities to the market," the economist stressed.

He expects that the decline in exports to Russia and other CIS markets will be offset by an increase in exports to EU markets and, possibly, new markets. The eurozone accounts for 35 percent of Lithuania's exports.

Swedbank is the first among Lithuanian commercial banks to cut Lithuania's GDP growth forecast for 2015, after the country's government admitted last month that the country's economy had been losing momentum.

Rimantas Sadzius, Lithuanian finance minister, suggested last month that the Lithuanian economy would grow at 2.7 to 2.9 percent in 2015, 0.5 to 0.7 percentage points lower than official projections announced by the ministry earlier last year.

Among other challenges, Sadzius pointed out the weakening Russian ruble and market.

In December, the Bank of Lithuania projected a 3.1 percent growth in GDP this year, which was less by 0.2 percentage points than had been projected in September.

"Both the country's domestic economy and export, particularly due to trade restrictions with Russia, will grow slower next year than was projected before," Raimondas Kuodis, deputy chairman of the board of the Bank of Lithuania, was quoted as saying.

INFLATION AND CONSUMPTION

Meanwhile, the average annual inflation in Lithuania is forecast to reach 0.7 percent this year and to accelerate to 2 percent in 2016, Swedbank said.

Household consumption would remain the driving force of Lithuania's economic growth this year.

Due to lower global oil prices and thus decreasing fuel prices, Lithuanian consumers will save 236 million euros (268 million U.S. dollars) this year, which makes up about 1 percent of all household spending in the country.

Nevertheless, it is unlikely that lower fuel prices will encourage Lithuanian consumers to spend more, Swedbank suggests.

"The money saved will likely to be put aside for a rainy day, amid the continuing geopolitical uncertainty and deteriorating economic environment," the bank said in a statement. Enditem