Economic spring postponed: ongoing quarantine could trigger recession

Praised the 2020s, but warned of 2021

In a remote press conference organized on Tuesday, the economist said that the excellent performance of the Lithuanian economy in 2020 was determined both by the rapid recovery of domestic consumption after the spring quarantine and by the sustainable development of exports. Furthermore, as explained, the Lithuanian real estate market, contrary to fears, avoided a recession.

During this crisis, Lithuania, according to him, also avoided a wave of emigration, and due to increased immigration, the total population of Lithuania increased, for the first time since 1990.

Positive developments were also observed, according to the labor market: wage growth did not slow down and reached double digits, while the number of employed persons decreased only slightly.

“In the spring of last year, the European Commission predicted that the economic recession in Lithuania in 2020 would reach 7.9 percent and be higher than the European Union average. However, the pessimistic forecasts did not come true: the European Union’s economy contracted by 6.4 percent and Lithuania’s by only 1.3 percent.

The excellent performance of the Lithuanian economy was determined by the strong performance of the industrial, agricultural, road freight transport and high value-added services sectors. In 2020, Lithuania became the export leader in information technology and financial services in the Baltic States, and not only Vilnius, which dominates this sector, but also Kaunas, which is growing rapidly, contributed to the success, ”he said, explaining that almost all sectors in Lithuania, and Lithuanians grew faster in the community.

However, Ž. Maurice cautioned that last year’s V-shaped rapid recovery scenario may not repeat itself this year. According to him, how low a drop in GDP we will reach and what recovery path we will have will depend mainly on when the quarantine restrictions are released.

“There is little clarity, the situation changes every week, but we evaluate the scenarios,” he said.

Lithuania’s GDP growth is forecast to be positive, 1.8% in the baseline scenario, following the lifting of the quarantine in March. Meanwhile, if the quarantine extends into May, we are likely to experience 1.7 percent. recession. In the most pessimistic scenario, assuming that one or another quarantine restriction or the prevailing uncertainty persists until July, the economy could claim to contract by as much as 8 percent.

“Lithuania currently applies the strictest quarantine measures in the Baltic states. The longer they last and the stricter they are compared to other countries in the region, the more and more negative side effects of the quarantine will be.

The impact of the quarantine on the economy can be compared to the snowball effect: if the duration of the quarantine is short, the economy quickly gets back on track after loosening the restrictions, because the accumulated trouble ball is small, but the longer the quarantine restrictions Finally, the bigger the ball gets, it’s not easy to get back on track, ”Ž said. Mauricas.

“The spring of the economy is stagnant, but that doesn’t mean it won’t happen.” It will happen only later and it should be warm enough, “the economist added.

See many threats

The economist also pointed out that there is a threat that small companies that have temporarily gone into the shade during the quarantine may remain in it and after the end of the quarantine, which would increase the share of the shadow economy in Lithuania for a long time. In their view, limited access to employment in the leisure sector could encourage young people to emigrate, and restrictions on mobility could encourage teleworkers to move to other countries where such restrictions do not apply.

It is also emphasized that Lithuania’s budget deficit was exceptionally high last year due to pre-election spending, and this year it is increasing due to an extremely strict and prolonged quarantine.

Government deficits and public debt, which are growing faster than in other countries in the region, could reactivate the tightening of the “tightening of the belt” that would lead to a deterioration in public and business expectations. Therefore, instead of the V-shaped recovery forecast in the fall of 2020, as secured, this year Lithuania is likely to have a W-shaped recovery.

“This year’s recovery and last year’s recovery will be similar in the sense that different economic sectors will feel it differently. In other words, the K-form recovery will continue to be monitored as uncertainty and The prevailing quarantines will have a greater negative impact on the tourism, leisure and restaurant sectors.In addition, the significant changes in the economic structure that have occurred in just one year will become a major challenge for the labor market, as it will increase the risk of structural unemployment growth ”, said Ž. Mauricas.

However, as he said, economic growth should accelerate in the second half of 2021 due to the lifting of unprecedented quarantine measures and stimulus measures.