Swedbank forecast: salaries will grow around 5%, but inflation will increase every year | Deal

Like many short-term forecasts, these were based on the assumption that the spread of the virus would slow significantly in the second quarter of this year. The pandemic and its aftermath remain the main drivers of the economy.

Recent data suggests that many restrictions on economic activity and mobility will soon be possible. During the quarantine introduced, the number of diseases began to decrease due to the decrease in contact between the country’s population.

“The peak of the second wave is in the past, but that does not mean that there will not be a third wave, we just have more instruments to handle it now. We also monitor vaccine statistics. The EU is not among the leaders on this front and the vaccinations ordered are not enough to vaccinate the majority of the population in the summer. Uncertainty also remains about the fluidity of the vaccination process and virus mutations, ”said Nerijus Mačiulis, chief economist at Swedbank.

Several factors are expected to stop the spread of the virus. In particular, an increasing proportion of the population will have immunity acquired through COVID-19 and vaccination. Seasonal factors will also be important: as last year’s experience shows, the virus spreads more slowly in late spring and summer.

Residents are willing to spend money

Banking experts predict that wage growth will be slower this year, but will reach around 5 percent.

Headline inflation in goods and services stood at 1% last year, and the prices of some goods did not increase at all. This year, the bank’s experts forecast an increase in inflation to 2%, and in 2022. inflation should reach 3%.

When summarizing the statistics of the retail trade of the last year, it was observed that the desire to buy of the population did not disappear. Retail and mail order sales have kept business volumes going. It jumped about 60 percent a year. Although there is no official data for December yet, when evaluating the card payment data, the bank’s experts predict that in December the purchasing power did not decline and may even be a record. Trade volumes fell earlier this year, but not as much as in 2020 in the spring.

The retail deposit portfolio grew about 18 percent during that time. “It just came to our attention then. As travel and shopping opportunities open up, that saved money will be spent.” Consumption potential has built up, which will be revealed in the second half of this year, “the economist noted. .

Part of this money, as before, will be converted into real estate investments (RE). Last year, the real estate sector surprised the experts: many predicted that it would find itself in a crisis. However, price growth continued in 2020.

“There are many questions about whether such growth is sustainable. We look at several indicators: rental income and housing affordability show that the market is not overheated. Rental yields are stable and close to the historical average, and growth of wages and changes in real estate prices, which determine affordability, are also stable, ”said the economist.

Lithuanian company deposits grew more than 36% during the year. It is also an important source of future investment growth, the impact of which will be felt this year. It should be noted that in 2020 the greatest decrease was in vehicle investments, which were purchased by 50%. investment in IT and intellectual property increased 23% and 11%, respectively.

A significant part of the growth in corporate deposits was due to government support, that is, tax holidays, after which excess liquidity will disappear.

“The 2020 crisis was unusual in many respects: business and household deposits grew at record rates, apartment prices and wages rose by nearly a tenth, and both retail and exports set new records. However, at the same time, there was a significant increase in the unemployment rate and several companies were forced to suspend their activities, ”says N. Mačiulis.

According to him, this crisis was not homogeneous and not national, there were many winners who lived better and better and many losers who still do not see better prospects.

“Addressing these inequalities through short-term support measures, long-term investments and retraining programs will not be an easy but important task for the new government,” concludes Sweden’s chief economist N. Mačiulis.

We will avoid shiny economic scars

Swedbank economists have lowered the Lithuanian economic growth forecast for this year by more than one percentage point to 2.7 percent. The main reason for this is several frozen months earlier this year, which should then be replaced by a rapid recovery, which will continue in 2022.

“Due to the untimely second wave of the pandemic, the recovery of the Lithuanian economy will be delayed a bit, but the outlook remains positive. In contrast to spring 2020, the population’s expectations have hardly diminished, and many people have seen better economic prospects and their personal financial prospects at the turn of the year, ”says Swedbank’s chief economist.

The economist notes that the outlook for export-oriented sectors is much better than for services. In November, Lithuanian exports of goods, excluding petroleum products, were up one-tenth more than a year ago, and rising export orders suggest that growth should continue this year as well.

Exports of services experience the greatest uncertainty; According to N. Mačiulis, this is an area that has created the prosperity of the country’s economy in the last decade. Although IT services exports grew the fastest last year, transportation services have the largest share in this area.

“The mobility package adopted by the EU poses new risks. We also see the risks associated with Belarus and its need for transit of goods. In our opinion, if the worst case scenario occurs, exports of transport services could fall by one fourth part. We see signs of this, as some Lithuanian companies are already establishing themselves in Poland. At the national level, this will not be a big impact, but it is one of the reasons why we have lowered the country’s economic growth forecast by 1.3 percentage points to 2.7 percent. “

N. Mačiulis notes that the accommodation, catering, leisure and entertainment sectors seem the saddest yet: a faster recovery is expected only in the second half of this year.

Political risks are diminishing, in Europe the light at the end of the tunnel

Swedbank economists do not change their forecast for world GDP growth this year: 3.4 percent from last year. it should decrease 4.7% this year. growth that is not forecast to fade in 2022.

“The eurozone economy is expected to grow 3.5 percent this year, and the countries that depend on tourism and suffered the most last year – Italy, France and Spain – should enjoy even faster, more than 4 percent “. economic growth, ”says N. Mačiulis.

The economist notes that many geopolitical risks have lessened: US protectionist policies will wane for at least a short time, and Brexit happened without drama when a last-minute deal on free trade was reached. Still, tensions between China and the United States and Western European countries are expected to persist.

“As last year demonstrated, the greatest risks are not where everyone’s eyes are. For example, climate change increases the likelihood of natural disasters every year. Today, an acceleration of inflation may also seem unlikely. Still, in the medium term, a combination of many factors could accelerate price growth. This would force central banks to raise interest rates and increase the cost of servicing sovereign debt and lessen the euphoria in the markets. of values ​​”, says N. Mačiulis.