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Dr. Luminor Chief Economist Dr. Sigismund Mauricas said that pandemics come and go, but economic stimulus measures remain (closed). The governments of the world’s great powers appear to be competing with each other to offer a more generous economic rescue package, regardless of the mounting debt burden. The European Union (EU), unlike during the crisis of 2009, is turning a blind eye to the rules of fiscal discipline and promises to be flexible with them at least until 2022, so the period of “belt-tightening” is postponed for the distant future.
Furthermore, the Lithuanian people are more optimistic about the pandemic after the end of the quarantine. There were fewer cases of coronavirus during the quarantine than in other European countries. So Lithuania could have opened earlier. The Baltic countries were one of the first to open borders and form the “Baltic bubble”. This has attracted the attention of foreign countries. That attention allowed people to relax and look to the future with more optimism, ”said the economist.
According to Ž. Maurico, Lithuanians have been talking about the economic crisis for a long time, probably since 2014. So she was partially prepared for it.
EU Economic Recovery Fund
As for the EU, it has approved a massive 750 billion. the European Economic Recovery Fund, whose money will also soon enter its economy. Central banks have also gotten into the economic stimulus carousel rampage, as if competing with each other, which will “print” more money and promise not to raise interest rates for a longer period of time. As a result, the scale of the money injection will remain unprecedented, despite diminishing fears of the COVID-19 pandemic.
All of this puts the economy at risk of overheating and price bubbles in individual asset classes; A similar situation existed in Hong Kong in 2003, when a country that overcame the SARS pandemic overstimulated the economy.
“It is true that the situation is far from being the same everywhere. In southern Europe, Latin America and India, the consequences of the pandemic are extremely serious and the economic dynamics of these regions still resemble the letter ‘L’. On the other side are Northern Europe, East Asia and Australia, whose farms follow the trajectory in ‘V.’ Western Europe and North America are somewhere in between: their GDP curves are more reminiscent of the letter “U”. “In other words, the impact of the COVID-19 crisis varies greatly depending on the structure of the country’s economy, trust in authorities, and the generosity of economic stimulus programs.
So while the biggest headache for V-shaped countries in 2021 will be the economy overheating, recovering L-shaped countries will continue to grapple with the consequences of the COVID-19 crisis. There is a danger that the uneven recovery of the world economy could increase geopolitical tensions “, Ž. Mauricas.
Countries will need to adapt to economic change
He also said it would not break into the same river twice, so some sectors would not return to pre-crisis levels even after the crisis ended due to changes in consumption and structural habits. The biggest changes will be the growing popularity of telecommuting or email. commerce, but the flourishing of these activities will have an impact on the performance of sectors such as IT, real estate, commerce, tourism or industry.
However, the economist pointed out that some changes in the economy are scaring people, such as rising unemployment. Still Ž. Maurice said that not all people made it back from downtime, and others did not even look for work because they work in the “shadow.”
“It just came to our notice then. People no longer travel abroad with that idea. They have become more cautious, finding a job first if they only find it and then leaving. Also, the economies of other countries have shrunk more than those in Lithuania, making it more difficult to get a job abroad, ”said the economist.
Those countries that are able to adapt more quickly to the changing business environment will have much better growth opportunities. Northern Europe, North America, and East Asia are likely to be the regions most easily adapted to changing circumstances, while Southern Europe, Latin America, and India will have the most difficulty implementing these changes. This is therefore a great opportunity for Lithuania, because if we have suffered little from the crisis, we can focus on the inevitable economic transformation.
Lithuania joined the League of Nordic Countries
The United Nations classified Lithuania as a Nordic region in 2017, and such a classification appears to have taken place in the context of the COVID-19 crisis. Lithuania, like other Nordic countries, is experiencing a rapid V-shaped recovery. In the first half of the year, the Lithuanian economy contracted only 0.8 percent. (only Ireland showed a better result across the EU), when the EU average was 8.3%.
Thus, unlike the 2009 crisis, Lithuania will be one of the least affected by the crisis and will significantly reduce the gap with Western Europe. We forecast the Lithuanian economy to grow by 0.2% in 2020, making Lithuania one of the few EU countries to avoid economic downturn in 2020. Our optimism is supported by the latest billing data for bank cards, industrial and retailers, suggesting a continued V-shaped recovery.
“The economic crisis in Lithuania has not yet started and billions of EU aid have not even started to be distributed. The efficient and transparent investment of funds from the EU Recovery Fund and the DNA Plan of the Future Economy It will also be a major challenge that will determine the development of the Lithuanian economy in the coming decades, ”said Ž. Mauricas.
Not all sectors of the economy will recover quickly
Luminor analysts predict that the decline in GDP in the Baltic countries will be short-lived this year, with rapid economic growth of 4-5% next year.
“I don’t want to blush all over and look overly optimistic, but the forecasts are far away. Of course, the second wave of COVID-19 is real and the situation is currently deteriorating in the three Baltic countries, but we believe that the second wave would be handled. in a more subtle and intelligent way than the first, leaving much more oxygen for business.
Unfortunately, this is little consolation for some of the worst affected sectors of the economy, which will take more than a year to recover and unemployment will remain relatively high for some time to come. On the other hand, an unprecedented window of opportunity opens up for the Baltic economies, when EU aid money flows into countries. If invested wisely, the Baltics can very quickly become the flagships of the digital and green economy, ”Ž said. Mauricas.
The biggest external threats are related to a multi-speed K recovery in the EU, which could widen the gap between North and South Europe and reduce the growth potential of the EU as a whole. The increasing likelihood of a hard Brexit could also disrupt the EU’s economic recovery plans. The growing political tensions in Belarus and the deepening economic crisis in Russia may also have a negative impact on the Lithuanian economy, especially in the transport and tourism services sectors.
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