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According to Maurice, the current restrictions on quarantine increase the prospects for economic recovery. It also increases the risks of negative side effects of the quarantine, the biggest of which are the growth of the shadow economy, a possible wave of emigration and a budget deficit that is growing faster than in other countries in the region.
An economist at Luminor cautions that last year’s rapid V-shaped recovery scenario may not repeat itself this year. The low drop in GDP that we achieve and the recovery path that we will have will depend, in particular, on when the quarantine restrictions are released.
If the quarantine is lifted in March, Lithuania’s GDP growth is forecast to be positive, reaching 1.8 percent. Meanwhile, if the quarantine extends into May, we are likely to experience 1.7 percent. recession. In the most pessimistic scenario (British distraction), assuming that one or other of the quarantine restrictions or the prevailing uncertainty would continue until July, the economy could contract by up to 8%.
“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 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 slackening, because the cumulative trouble ball is small, but the longer the quarantine restrictions last The bigger the ball gets, it’s not easy to get back on the court, “said Maurice.
Predict a growing budget deficit
According to the economist, there is a threat that a small company that has temporarily gone into the shade during the quarantine could remain in it after the end of the quarantine, which would increase the share of the shadow economy in Lithuania for a long time. Limited employment opportunities in the leisure services sector can also lead to the emigration of young people. And the movement restrictions that do apply can encourage telecommuters to move to other countries where such restrictions do not apply.
“Lithuania’s budget deficit was exceptionally high last year due to pre-election spending, and this year it is growing due to a prolonged and extremely strict quarantine.” The growing budget deficit and public debt faster than in other countries of the region can reactivate the narrative of “tightening the belt”, which would lead to a deterioration of the expectations of the population and companies, “explained J. Maurice.
So instead of the V-shaped recovery forecast in fall 2020, we are likely to have a W-shaped recovery this year.
According to Maurice, the recovery of this year and that of the past will be similar in the sense that different economic sectors will feel it differently. In other words, the recovery of the K form will continue to be monitored, as the prevailing uncertainty and quarantine restrictions will have a greater negative impact on the tourism, leisure and restaurant sectors.
Furthermore, significant changes in the economic structure in just one year will be a major challenge for the labor market, as the risk of structural unemployment growth will increase. However, in the second half of 2021, economic growth should accelerate due to the abolition of quarantine measures and unprecedented economic stimulus measures, ”he said.
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