N. Mačiulis: Expect another turbulent landing, but the worst is over Business

Swedbank economists do not change the basic assumptions that by the middle of next year the threat of the virus will disappear by approved vaccines, more effective drugs or natural processes, although the coronavirus will have to learn to live for a long time. In addition, the economic losses will be mitigated with a large number of stimulus measures and financial bailouts from governments and central banks.

“Although the second wave of the pandemic seems larger than the first in many European countries, the affected countries are trying to stop it with less economic restrictions. It is also important that many businesses and residents have adapted to the new reality and are ready to working remotely, trading and providing services by limiting physical contact and minimizing risks, ”Swedbank Chief Economist Nerijus Mačiulis said at the presentation of the economic forecast.

“We expected the second wave to be, but we did not expect it to be that large in terms of the number of people infected,” added N. Mačiulis, emphasizing that the second wave of the pandemic in Lithuania did not stop in time.

According to him, due to these factors, the economies of many European countries, including Lithuania, will contract in the last quarter of this year, but it will be a much smoother and less sectoral contraction.

The Lithuanian economy will remain one of the least affected

N. Mačiulis warns that even in Lithuania, even without the introduction of quarantine, residents began to limit their visits to shopping centers and work more often from home. This trend can be observed since the beginning of September.

“The strict quarantine will take effect only in a couple of days, but now residents already work more often from home, visit shopping centers and leisure areas less often,” notes N.Mačiulis.

However, in his opinion, this time the uncertainty is much lower than in the spring, when the population did not know what would happen to employment, which resulted in a drop in domestic consumption.

This time, things were different, as residents adjusted and started buying more online.

Therefore, despite the rapid spread of the virus in our country and the imminent entry into force of another quarantine, the forecasts for the Lithuanian economy this year are not reduced, but a somewhat slower recovery is expected in 2021.

Swedbank economists forecast that the country’s GDP will shrink 1.7 percent this year, and the growth forecast for next year will be lowered to 4 percent.

“Quarantine restrictions will not be as severe this time; many outlets will not be closed and residents are more likely to use food delivery services and are used to shopping online. At the moment, there is not as much uncertainty as the one we see in the spring, so businesses and residents alike have a clearer understanding of how to protect and what to expect, ”says Nerijus Mačiulis, Chief Economist at Swedbank.

According to him, Lithuania’s GDP is likely to contract again in the last quarter of this year, but it will not be a large-scale drop, just a few sectors.

N. Mačiulis also draws attention to the fact that, despite the second wave of the pandemic, the Lithuanian population still does not feel anxious about its financial situation, nor does it tend to change its behavior.

The consumer confidence indicator continued to grow in October and Swedbank’s payment card data shows that retail sales growth has not slowed down at all, and so far only a slight decrease in spending has been observed. households.

“Costs at hotels and airports are around 75 percent less than a year ago and will not recover anytime soon: these few sectors that have been hit hard by the pandemic will still need special state support,” says N. Mačiulis.

The worst of the past?

Swedbank economists forecast that the median salary will rise by 5.5 percent next year and unemployment will return to the pre-crisis level in 2022.

“Despite the bleak short-term outlook, in many respects the worst is over, and some sectors are and will continue to prosper,” believes N. Mačiulis.

According to him, household deposits have grown by two billion euros this year – which is reflected in his positive expectations and, for example, in decisions to invest in real estate – the number of transactions and prices began to beat new records.

“A record number of the population has also started investing in securities; the number of Swedbank clients actively investing has tripled,” notes N. Mačiulis.

However, Lithuania’s long-term prospects will not depend on how and where Lithuanians spend and invest money, but on the country’s competitiveness and export potential, the economist notes.

“The key factor is how the EU support and public loans will be mobilized. It is also very important what structural reforms will be implemented during this crisis. We have the opportunity to come out of this crisis not only with higher debt, but also with a more competitive and greener economy, a more sustainable infrastructure and a higher quality education system, ”concludes N. Mačiulis, Chief Economist at Swedbank.

Global forecasts have been cut

Swedbank economists also cut their forecasts for world economic growth next year, but world GDP growth is still expected to be relatively strong at 4.7 percent.

A faster recovery of industrial companies is currently being observed, but many service sectors are again facing problems.

“Currently, there are major differences between sectors of the economy that are still suffering and are prosperous. European industry is seeing recovery in demand even at the height of the second wave of the pandemic. Although many services are abandoned after passing more time spent at home, durable goods such as furniture or appliances are more frequently bought. Meanwhile, the recovery of many sectors of accommodation, leisure and some sectors of entertainment is expected only in the second half of next year “, says N. Mačiulis .

Swedbank economists predict that the unemployment rate in the euro area may rise slightly next year to 9 percent.

“Incentives for many governments should not only provide short-term financial support, but also allow for the mobility of workers between different sectors,” says the economist.

Economists also predict that central banks will not raise interest rates for the next three years.

Lithuania’s GDP grew in the third quarter

According to the Statistics Department, Lithuania’s gross domestic product (GDP) grew by 3.7 percent in the third quarter. and it was only 1.4 percent. less than the corresponding period a year ago.

This was due to high consumption in the summer, a good grain harvest, and flexibility of exporters.

The annual decline of the Lithuanian economy in the third quarter of this year was the smallest of the ten countries in the European Union that have already published data, according to data compiled by Eurostat.