Optimistic trend: Lithuania is facing the crisis better than expected, says SEB | Deal

The bank predicts that Lithuania’s gross domestic product will drop 6.7 percent this year. That is two percent. points less than expected in early May.

SEB also says the country’s economy will grow 5.3 percent next year and grow 3 percent in 2022.

The forecasts have been revised to take into account the latest data on industry, retail and domestic consumption. They testify that the country’s society and companies resisted the first COVID-19 coup with more success than expected, according to the bank.

SEB forecasts that the impact of the coronavirus pandemic on the Lithuanian economy will be less than in many other euro area countries due to relatively good epidemiological crisis management, less tourism, the impact of the automobile sector on the economy and others. factors.

Southern European countries and countries whose economies depend more on the success of the auto industry will be hit hardest.

Consumption is increasing, but so is unemployment.

The Lithuanian economy is being helped out of the well by recovering domestic consumption, which contracted significantly less in April and May than feared at the start of the quarantine, SEB says.

Retail trade turnover in May at constant prices was only 0.6%. Less than a year ago, and excluding fuel sales, retail sales grew 1.8 percent.

Consumer expectations and the confidence indicator have returned to the 2017 level, which is a good sign for companies that sell products and provide services, says the bank.

However, the biggest concern is the change in consumption in the fourth quarter, which is more active for merchants, as people, especially in the case of an epidemiological situation, can again limit spending very quickly.

While unemployment will continue to rise, SEB Bank predicts its jump will be less than feared at the beginning of the quarantine in March. Registered unemployment in Lithuania has increased 2.7 percent since the end of February. point.

According to the forecast, average unemployment this year will peak at the end of the year, and average unemployment will be 9.3 percent. It will drop to 8.4 percent next year.

SEB Bank also forecasts the average pre-tax salary to be 2.5% in 2020. higher than a year ago and to grow 3.5 percent in 2021.

He argues that the average wage has been saved from the annual decline by keeping wages stable in the public sector, in contrast to the private sector.

Next year’s wage change will again depend not only on economic trends, but also on decisions to change the monthly minimum wage (MMA) and the public sector wage bill. Chances are, if MMA grows next year, it will be minimal, and public sector workers will have to settle for slower wage growth.

SEB Bank does not change the previous forecast that average annual inflation will reach 0.8% this year and in 2021. – 2.2 percent.

Industrial recovery

Although the industry fell 5.1 percent and manufacturing 5.5 percent in the first five months of the year, the bank is also seeing signs of recovery in this area.

Production by some industrial companies was already higher in May than in April, and the decline in electricity consumption slowed in late June, indicating that the slowdown in industrial production is shrinking.

As the economies of Lithuania’s major exporting partners rebound, a smaller decline in the industry is expected in the coming months. However, SEB says that this sector is also the most sensitive, so it is cautious when forecasting changes in industrial production in the coming months.

The bank concludes from the decrease in the loan portfolio of credit institutions and the increase in corporate deposits that the company reduced working capital during the pandemic, but at the same time maintained a good cash flow from operating activities.

The measures to stimulate the government also helped the business: the companies, by saving money, owed the government more than 500 million euros on time. Population deposits also grew rapidly.

According to the bank, the most beneficial state aid for business were soft loans, interest compensation, the possibility of deferring taxes on Sodra and the State Tax Inspectorate.