Analytics, Economics, Lithuania

"There are some signals showing the recession could be deeper than the last forecast from the finance ministry," which has predicted a 10.5-% slump in the Baltic state this year compared with 2008, Kubilius told reporters.

The central bank is forecasting an even worse contraction of 15.6%. Kubilius' comments came as Lithuania's national statistics office said it had revised to 13.6% its earlier 12.6-% estimate of the first-quarter slump, compared with the same period in 2008.

The previous estimate, issued at the end of April, had already marked Lithuania's deepest quarterly slump since comparable records began in 1995, the statistics office said at the time.

Asked if he expected the crisis to bottom out this year, Kubilius said recovery hinged on developments in the global economy and notably in the rest of the European Union and Russia, the Baltic state's main export markets.

"We are prepared both for an optimistic scenario and a not very optimistic scenario," he said.

Lithuania, which declared independence from the crumbling Soviet bloc in 1990, had enjoyed a reputation as a fast-growing economic "tiger," notably since joining the EU in 2004.

The economy of this country of 3.4 million people expanded by a record 8.9% in 2007 after growing 7.8% in 2006. But growth slowed to 3% in 2008 as rampant inflation and the global crisis took their toll.

Like its recession-hit counterparts in neighboring Latvia and Estonia, Kubilius' centre-right government has been slashing spending to try to tackle the crisis. The belt-tightening drive and rising unemployment have stoked public discontent.

"Further cuts should be considered in a very careful way, so as not to push the whole economy into a negative spiral," in which the Government belt-tightening accentuates the recession by further denting consumption, he said. One of the goals of the austerity drive is to rein the budget deficit – the amount by which a country's spending exceeds its income over the year – in an effort to adopt the euro.

Under the EU's Maastricht Treaty on economic and monetary union, the bloc's 27 governments are meant to keep their deficits below 3.0 of gross domestic product. That rule is particularly crucial for would-be members of the euro zone, which currently comprises 16 EU nations.

Vilnius missed out on switching from its national currency, the litas, in 2007 after narrowly failing to meet other criteria on inflation control.

"Our strategic goal is to adopt euro as soon as possible," said Kubilius. "We want to stay with a prudent deficit, as low as possible, but it depends on the situation on the financial international markets," he added.

"We are trying to keep it close to the target of 3.0%," he insisted.

Lithuanian officials have said the euro zone goal is 2011, although Kubilius said it would not be prudent to discuss a date amid the economic crisis.