Lithuania's Prime Minister sees no danger of recession and expects its economy to grow 5.5 percent this year and 4 percent in 2009, he said on Monday. Lithuania's growth will decelerate at a slower pace than the other two Baltic states of Latvia and Estonia, which are already in technical recession, Prime Minister Gediminas Kirkilas told Reuters in an interview.
Latvia and Estonia are also having to cut spending as their revenues have fallen. "I don't think Lithuania is threatened by recession. We expect the economy to grow 5.5 percent this year after 6.2 percent growth in the first half. It's quite big growth in the current situation," Kirkilas said.
"We expect growth of 4 percent next year, and the budget is being planned accordingly. That's not a wild guess, because our economy is more diversified than that of our neighbours." Kirkilas said Estonia's recession was also caused by Russia blocking transit goods. Lithuania's transit routes were more diverse, including Belarus, Kazakhstan and China, he said.
He expected the annual average inflation rate to fall to 5 percent next year, if energy prices continue down. A high rate of inflation, which was 12 percent year-on-year in August, has been the main reason for a delay in plans to adopt the euro. The country now sees 2011 as a possible date.
The prime minister's forecasts were similar to those made by the Finance Ministry in April, when it said it expected growth of 5.3 percent this year and 4.5 percent next year. He said next year's budget would be balanced, as planned. "We have the law on fiscal discipline, and according to the law we should not have a budget deficit," Kirkilas said.
Lithuania has said it planned a budget deficit of 0.5 percent of GDP this year, but analysts have doubted this was possible due to the economic slowdown. Another complication is the need to close the Ignalina power station, which generates 70 percent of Lithuania's power, at the end of 2009. The loss of the source of such large amounts of electricity could drive up energy prices, analysts have said, further delaying euro adoption.
But Kirkilas said efforts to lobby the European Union to be allowed to keep the plant open could bear fruit. "We expect that we would be allowed to shut it down at a slower pace, because the second reactor can work safely until mid-2012, when we expect to have at least one (electricity) interconnection with Poland or Sweden," he said.
Kirkilas said he was going this week to Brussels to talk to the European Commission about the issue. "We expect the European Commission to present its position on Lithuania's energy situation to the EU summit in October. We hope the Commission will continue a constructive dialogue on this," Kirkilas said.
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