Mačiulis spoke about the risks, but he has a good understanding of wage growth

The economy is booming, but it presents a number of risks

Based on macroeconomic forecasts, the Swedbank economists relied on the assumption that the delta strain of Sars-Cov-2 virus and other strains are likely to spread, but vaccines will provide effective help in preventing the worst consequences. In many Western countries, where a large proportion of the population has already been vaccinated, the limitations on economic, social and educational activity that have been applied so far will be avoided.

“There are still risks associated with the spread of more dangerous strains of the virus, but strict quarantine is likely to be avoided and mild social restrictions will suffice.

Many countries will recognize that, for example, school closings and distance learning not only have the potential to stop the spread of the virus, but also have very negative long-term consequences for the skills, social skills and psychological health of children. students, ”Mačiulis said. at the beginning of the conference.

According to him, despite the ongoing pandemic, people and businesses in many Western countries have adapted to the new reality, causing consumption and economic activity to return to pre-pandemic levels. Rapid economic growth is expected to continue for at least the next two years.

“At the moment, growth and the outlook look really bright, but a lot of risks remain.

New strains of the virus could further increase its spread and danger, negatively impacting expectations and demand. However, even smaller supply shocks are possible: virus outbreaks in developing countries force factory closures, disrupt port operations, increase prices for many raw materials and components, and increase already high inflation, “he said. Mačiulis and added that both economic policy errors, geopolitical conflicts, climate change and cyber attacks.

According to him, the GDP of the euro zone will not reach the pre-crisis level this year, but growth will continue to be fast and already in 2023. It will return to the long-term growth trend that we have seen during the last decade.

“The crisis has been deep but very short-lived and the euro zone as a whole will continue to grow,” he said.

According to the economist, the huge financial resources allocated to the development of green and digital infrastructure in the US and the euro area will not only stimulate their economic growth in the coming years, but will also create greater growth potential in the future.

“Central banks will also contribute to the growth of investment and consumption, which for the moment are reluctant to suggest a possible rise in interest rates.

The US Federal Reserve is not likely to raise interest rates next year. Given that the risk of excessive inflation in the euro area will remain low for a long time, we expect the ECB to raise key interest rates for the first time only in the second half of 2024.

Unfortunately, extremely low interest rates not only encourage corporate investment, but also drive the prices of some financial assets to unsustainable heights, ”said N. Mačiulis.

Lithuanians know wages well

Swedbank economists raised this year’s GDP growth forecast for Lithuania to 4.2 percent, and lowered next year’s forecast to 3.5 percent. This reduction is said to be related to the base effect: the recovery that was projected in 2022 has already occurred in 2021.

“In general, the recovery is visible in all the Baltic countries,” said the economist.

Similarly, as explained, economic growth is projected to continue into the future, driven by both record EU support and strong consumer-driven wage growth.

“This year, the Lithuanian economy boomed faster than expected, due to extremely high demand for Lithuanian products in export markets, enthusiastic consumption by the population and, apparently, the recovery in investment.

However, despite the impending large influx of EU funds, growth is expected to slow next year, with up to half a percentage point of growth “eaten away” by falling transport services exports to Belarus and the decline in exports to China.

However, these two factors will have negative consequences for only a small part of companies and will avoid further challenges for the entire economy, employment and public finances, ”commented N. Mačiulis.

He explained that Lithuania’s support for Taiwan could also have very positive consequences for the country.

“Lithuania can invest in a semiconductor plant, which will require several billion investments.

It can also be a somewhat unexpected success story, ”he said.

In terms of salaries, according to the economist, the median salary will grow more than one tenth (10.3%) this year, and growth will slow down only slightly in the next two years (8.2% in 2022).

It is true that, as was hinted, not only will wages rise, but also prices. According to him, average annual inflation this year and next should reach 3.7 percent.

According to the economist, this higher inflation does not mean that the Lithuanian economy is overheating: three-quarters of current inflation is related to the import of more expensive raw materials and higher prices for electricity and gas.

“The number of vacancies has reached record levels and, in the near future, this problem will become even more acute for companies.

The shortage of workers increases their bargaining power, so we are witnessing one of the fastest wage growth in the entire region.

However, all other factors show that Lithuania’s economic growth remains sustainable: the foreign trade surplus remains high, the debt-to-income ratio is stable and the affordability of housing has not decreased. The risk of overheating remains, but it can be avoided ”, summarized N.Mačiulis.