Mačiulis: the peak of unemployment is near, there is a risk of a new wave of unemployment

Low economic forecasts

Although Swedbank forecasts 5% in March. The contraction of the Lithuanian economy, with a pessimistic scenario of −10%, is currently forecast closer to the optimistic scenario.

Observing electricity consumption, payment card payments, credit flows and registered unemployed, Swedbank economists estimate that Lithuania’s GDP will drop by about a tenth in the second quarter of this year.

Lithuania’s GDP will decline less than the euro area average and less than in other Baltic countries. According to N. Mačiulis, in 2021. A significant economic recovery will be seen.

“Given the difficult situation in export markets and a possible slower recovery, we are lowering the forecast for this year’s change in Lithuania’s GDP from -5.0 percent to -6.5 percent, but this should be the smallest decline among the Baltic countries, “says N. Mačiulis.

The greatest risks are not related to domestic demand, but to export prospects. According to N. Mačiulis, Lithuanian exports will drop 9% this year, but they do not rule out a worse scenario.

Although this year’s budget deficit is expected to reach approximately 7.5 percent. Swedbank economist GDP does not dramatize this, and believes it is an aspiration.

According to the economist, without an anticyclical fiscal policy (higher public spending and lower taxes), the economic recession and unemployment would be much greater. Borrowing at interest rates close to zero will not cause a headache in the future.

“However, at this time, we must think not only about taxes and other measures to prevent further increases in unemployment, but also about how we can encourage domestic and foreign investment and job creation,” says N. Mačiulis.

Baltic countries will not be among the most affected

The world economy is forecast to shrink by 3.8%, and the euro area GDP forecast is to shrink to -6.9%. Economies should shrink further in those countries that have faced the crisis unprepared, have been most affected by the pandemic, and have limited resources to cope with its consequences. Italy’s GDP is projected at 9%. contraction.

Swedbank predicts that the Baltic economies will not experience the same recession as the countries of southern Europe: with the relaxation of quarantine measures, they are already seeing a recovery in domestic demand.

“First of all, the virus has affected the Baltic countries less, we have stayed out of the pandemic.” Membership in the euro area also offers favorable debt opportunities, while low sovereign debt offers greater opportunities for countercyclical fiscal policies. A stable financial system, high rates of bank capital adequacy and loan guarantees allow us to hope that the flow of credit does not run out.

Finally, the lower dependence on inbound tourism and the structure of exports also allow us to expect a minor blow, ”says N. Mačiulis, the reason why the Baltic countries will not be among the most affected countries.

It also draws attention to the fact that the Baltic countries have faced the crisis without overheating and balancing: there is no foreign trade deficit, there is no property bubble, companies and people do not have excessive financial liabilities.

Worst of the past

“The bottom has already been reached, the recovery is beginning, it will not be easy and fast, but in many ways it can be said that the worst is in the past,” says the economist.

N. Mačiulis notes that unemployment in Lithuania reaches 11.5 percent. In recent weeks, however, it has been observed that more people are being recruited than fired.

A Swedbank economist believes the unemployment rate is already near the peak, but warns that without additional measures, the ranks of the unemployed may increase further.

“Unemployment is near the peak, there is a risk with a new wave of unemployment in the export sector. But we do not forecast that the unemployment rate will increase significantly and reach the level in 2009-2010, ”he predicts.

According to N. Mačiulis, some 33,000 people have been registered since the beginning of the quarantine. new unemployed. He predicts that there will still be around 5,000. new unemployed and will reach about 40 thousand.

The economist points out that the unemployment rate predicted by Statistics Lithuania, what percentage of the total workforce will not have a job, will reach 8.9 percent this year.

“A little more than expected in the fight, but not dramatic,” he says.

Most of the new unemployed came from the tourism, accommodation, catering and commerce sectors. The worst is probably the past and visible stabilization, but it is too early to wait for job growth. Furthermore, many export industries will face challenges by the end of the year, which will lead to a new wave of job loss, Swedbank in the report

Residents change their habits: they pay more often with cards

N. Mačiulis also said that by easing quarantine conditions, the number of payment cards has increased. They are currently 5 percent. lower than in January, and at the beginning of the quarantine the fall was said to have reached 25%.

“Cash payments have decreased significantly and are not recovering. 25 percent cash withdrawals dropped. Perhaps it is related to fear that there may be a virus in the bills. Residents can no longer get back into the habit of making a much of their cash payments. The same is seen in Latvia and Estonia: cash payments have decreased significantly, “says the economist.

Home prices are projected to drop a tenth

According to N. Mačiulis, the property market is not overheated at this time.

“It is difficult to see some of the offers, so we looked at the announcements. The sale prices reacted slightly, especially in Vilnius, during April and the first week of May they fell by almost 5 percent. We forecast that this year the average price of apartments should decrease by about a tenth. “ – commented the economist.