The economic foundations of Lithuania remained solid last year and this trend, despite external risks, is expected to continue in 2015, Lithuanian Prime Minister Algirdas Butkevicius said on Thursday.
Deteriorating trade relations with Russia had a noticeable negative impact on the Lithuanian economy. Nevertheless, the effect has not been as painful and immediate as previously suggested, Butkevicius told a forum named "Lithuania's economic conference 2015."
"Lithuanian GDP grew by 3 percent in 2014, wages increased, unemployment went down," he added.
Butkevicius said it is a tense period for the government dealing with "formerly forgotten military risks" and "economic relations being constrained by Russian embargoes."
"The government must stay at a constant standby mode, forecast and follow the forecasts, and above all, have an action plan B," he noted.
Lithuanian businesses have been successfully redirecting their exports to the new markets in Asian and African regions, the head of government said. According to him, domestic consumption has been growing significantly and contributing to economic growth.
Gitanas Nauseda, chief economist of the SEB bank in Lithuania, urged the government not only exports but also domestic consumption.
Nauseda also predicted optimistic near-term economic trends for Lithuania, partly due to the weakening euro which would help consolidate Lithuania's positions in U.S. dollar markets.
MANY ACHIEVEMENTS
Earlier this week, Butkevicius noted that the shadow economy has been contracting in Lithuania. According to him, it shrunk by 0.9 percent in 2014.
"The provided information shows that the fight against the shadow economy is not tilting at windmills as some like to say," he said.
Among other recent achievements, Butkevicius mentioned improvements in Lithuania's energy sector which has let energy resources prices go down thereby benefiting consumers.
Last year, Lithuania agreed on 20 percent cheaper gas deliveries from Russia's Gazprom. The new Lithuania's liquefied natural gas (LNG) terminal in the port city of Klaipeda became one of the most important arguments in the negotiations with the Russian state gas exporter.
EUROPEAN COMMISSION'S VIEW
Lithuania is expected to achieve solid growth in the short term, despite increased external risks, the European Commission (EC) said in its latest country report released Thursday.
Domestic demand has taken over as the main growth engine, the EC noted.
"It is expected that domestic demand growth will carry its momentum into 2015, largely driven by rising wages, falling unemployment and subdued inflation," the EU's executive arm said in its report.
The EC expects Lithuania's GDP to grow by 3.0 percent this year. Unemployment is set to continue its downward trend to 8.7 percent in 2015.
However, it warned about structural challenges which persist, particularly in terms of demography.
"The working age population is shrinking rapidly. The population decline is due to negative demographic developments but aggravated by net emigration and poor health outcomes as illustrated by low life expectancy and high morbidity rates," the EC cautioned.
Furthermore, the external environment, growth in the EU is expected to remain weak and downside risks remain in place as geopolitical tensions between Russia and the EU mount, the report said.
