Highlights forecasts if wages will fall this year: there is a challenge for the middle class

Luminor chief economist Žygimantas Mauricas and SEB Bank economist Tadas Povailauskas spoke about changes in wages and prices in the “Monetary Affairs” program.

The year will be more successful for the public sector than for the private sector.

The Bank of Lithuania (LB) predicts that due to the impact of the pandemic, the unemployment rate will increase this year to 11.9%, and the average salary will decrease by 2.6%. On the show, economists said they believe that overall, we will still see a rise in wages in the statistics, because no one in the public sector is cutting wages.

“According to our forecasts, wages will increase this year. We are more optimistic than LB in this place. Sodra has already published the April data: yes, in those cities where the tourism, accommodation and catering sector dominates: Birštonas, Druskininkai, Vilnius, Klaipėda himself, we have seen a small annual negative change, but where more state institutions dominate, especially in the smallest ones. In municipalities where there are no industrial companies, that annual change was still positive, since nothing decreased for the sector public.

It is clear that wages in various sectors will continue to be lower, especially where wages are linked to sales. It is obvious that the income and profits of the companies will not return to the level of the previous year, therefore, the variable part will be less, “said T. Povilauskas.

According to him, SEB banking economists forecast that wage growth will reach around 0.8 percent.

“For the public sector (Delfi may grow). The annual change was around 9 percent. Growth, this growth will remain the same in the following quarters. Again, there is another thing in which public sector employees You should already think: and what will happen to wages next year, because it will no longer be possible to go to the Prime Minister as before and say, in the private sector, wages are growing by 9%, we do not want less growth, “he said. the Economist.

Ž. Maurice has projected that wages are expected to grow around 2-4%, but these figures are still subject to change with the latest labor market data.

“It just came to our attention then. The gap between the public and private sectors will be wide. Certainly, the public sector probably won’t be able to complain not only this year, but also to others and still others about low wages.

There is also a technical point: in Lithuania, the monthly minimum wage (MMA) has risen quite significantly and if a large number of companies, at least the large ones, have already adapted their salary structure to these changes at the beginning of the year, there will be a technical boost. The entire wage scale for labor is likely to level off even further, which is typical of the early crisis years. Later in the following years, in 2021–2022, it tends to increase in parallel again, but during the crisis, the salary scale generally flattens, ”Ž said. Mauricas

Furthermore, he noted that this crisis has set foot in the formation of the middle class in Lithuania.

“I think it has really slowed down the formation of the middle class, because most of the support measures are aimed at those with the lowest incomes or the amounts of those measures are mainly linked to MMA.” As an example, compensation for downtime. The income of the middle-class population, I would even dare to say, will generally decrease or not grow. Unlike other population groups, especially the retirement age population for which pensions have been increased and are unlikely to decrease at least this year and others. Perhaps this is the biggest challenge for Lithuania in the future, how to strengthen that class again, because it is the backbone of the Lithuanian economy. Often these people are a little younger, more mobile, and may decide to migrate if they don’t see a situation that improves. It may not be this year, I think we will have another positive balance of emigration this year, but next year it will be a litmus test, “said the economist.

Regarding the decrease in wages, T. Povilauskas noted that there should not be a reduction in wages for existing employees; Those who wanted from the employers did so at the beginning of the quarantine.

“As for new hires, I think there will be similar or slightly lower wages,” he added.

Surprising increase in service prices

According to forecasts by the Bank of Lithuania, inflation in Lithuania will rise to 0.6% this year. According to economists, energy resources had the greatest impact on falling prices: oil prices became cheaper. Much higher inflation can be expected next year.

“We forecast 0.8 percent. Inflation. It is true that next year we forecast 2.2 percent. Growth, and LB more modestly. This is what we believe will have a positive effect from higher energy prices next year.

Firstly, what has reduced inflation is energy resources: fuel, natural gas or electricity. Especially from July 1, the price of electricity and gas will also decrease for domestic consumers. This is the main factor. In addition, in certain sectors (clothing, footwear) we have falling prices, which shows that competition and the desire to sell more forces us to lower the price. In the clothing sector, prices are much lower than a year ago.

I think that food prices will also fall in the coming months, because that year there were similar factors: pork prices increased, the yield of vegetables deteriorated, these factors will disappear this year and now the most important thing is to see how service prices change, how our service providers will. Litmus paper too: if prices fall, the flow of buyers is reduced and attempts are made to attract them. If the prices of services do not decrease or increase, then it is not so bad with demand, “said T. Povilauskas.

Economist Ž. Maurice said there has been a recent increase in prices for services.

“I would like to believe that (the price increases Delphi) will be less than 0.6% but I’m afraid it will be higher, because the price dynamics in the services sector in particular is somewhat different from the general context in the EU and even in neighboring countries. Prices in the service sector are growing by almost 5%, restaurants, cafes and hotels even faster. Meanwhile, Estonia is already experiencing negative growth in those sectors. Is it not the case that companies in these sectors are making partial efforts to compensate for the drop in billing by increasing prices?

Such tactics may not have much forward-looking, as there will still be little or no wage growth, as we have said before, and uncertainty will lead to a drop in demand for such services. that the general price level in Lithuania is still quite high. Inflation in Lithuania is growing much faster than in Latvia and Estonia, “said the economist.