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GDP growth is projected to be around 3% in 2018-19. Improving external demand and a turnaround in investment, on the back of increased EU fund disbursements, will support growth, even as the shrinking labour supply and skill shortages will constrain the supply side. The combination of strong demand and labour market tightening will push up inflation.
After a mild expansion in 2017, associated with a package of structural reforms, the fiscal stance is poised to remain appropriately broadly neutral over the projection period. Measures to raise productivity and reduce high inequality and poverty should focus on promoting business dynamics, including through simplified bankruptcy procedures, and making the labour market more inclusive through life-long learning strategies, effective activation schemes and enhanced education outcomes.
Lithuania’s financial sector is stable, with non-performing loans on a downward trend. House prices and credit growth are rising, but they are still far below their historical highs. Macro-prudential tools need to be strengthened if signs of overheating emerge. Spillovers of external financial conditions remain a potential risk to financial stability given the high presence of foreign banks in Lithuania’s banking sector.
Economic Survey of Lithuania (survey page)