Politics is likely to continue to be fractious throughout the forecast period. A coalition centred on the Social Democratic Party (LSDP) and the Labour Party currently has 80 out of 141 seats in the Seimas (parliament). The impetus for reform of the civil service will be weak and corruption will remain a systemic problem. Relations with Russia will remain tense over the forecast period, particularly following the Ukraine crisis and EU-Russia sanctions. Lithuania will continue to pursue a pro-Western foreign policy. Despite the recent expulsion of the Lithuanian Poles' Electoral Action (LLRA) from the government, the country's relationship with Poland will remain sound, with the two countries among the most hawkish in relation to Russia.
The rate of real GDP growth has slowed in recent quarters as the easier catch-up gains following deep recession in 2009-10 have been eroded. Fiscal policy is expected to remain tight, despite the fiscal deficit being well within the EU's 3% of GDP limit. The external outlook has clouded significantly, owing to the impact of the Ukraine crisis on business and consumer confidence and weaker growth in Russia and the euro zone, Lithuania's two main export partners. Nevertheless, further structural reform will see growth average 3.2% in 2015-18, one of the fastest rates in the EU. Lithuania will join the euro zone in January 2015.
We forecast that real GDP will grow at an average annual rate of 3% in 2013-30. Average annual growth is expected to slow from 3.3% in 2013-20 to 2.8% in 2021-30. The slowdown in forecast growth is mainly the result of a deterioration in the demographic situation, which will be only partially offset by a higher rate of labour productivity growth. Nevertheless, we expect the economy to grow more quickly than the developed west European economies, so that Lithuania's GDP per head (at market exchange rates) will rise from 59% of the level in Germany in 2013 to around 84% 0 f that level in 2030.

ML01 5

ML02 6

Lithuania-highlights 7

Political outlook 7

Demographic outlook 7

Business environment outlook 7

Economic outlook 8

Market opportunities 8

Long-term outlook 8

Fact sheet 9

Political outlook 10

Political forces at a glance 10

Political stability 10

Political and institutional effectiveness 10

Election watch 12

Key players to watch 12

International relations 13

Demographic assumptions 14

Business environment outlook 16

Lithuania's business environment at a glance 17

Macroeconomic environment 18

Policy towards private enterprise and competition 19

Policy towards foreign investment 19

Foreign trade and exchange controls 20

Taxes 21

Financing 22

The labour market 23

Infrastructure 24

Economic forecast 26

Policy trends 26

Fiscal policy 26

Monetary policy 27

International assumptions 27

Economic growth 28

Sectoral trends 29

Inflation 30

Exchange rates 30

External sector 31

Foreign direct investment in Lithuania 32

Market opportunities 34

Market outlook 34

Long-term outlook 35

The long-term outlook 35

Methodology for long-term forecasts 38

Data summary 40

Data sources and definitions 45

Guide to the business rankings model 46

Indicator scores in the business rankings model 47

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