Recent economic forecasts for Lithuania: reality will surprise, only this time – negatively

Presenting the review of the Lithuanian economy in the third quarter, Tadas Povilauskas, an economist at SEB Bank, points out that the bank has adjusted its forecast for a decline in GDP this year, from 2.9 percent. up to 3.6 percent. As projected, the annual GDP would be 1.5 percent. lower than last year, it is 0.2 percent. point below projected in August.

Lithuanian GDP growth next year of 3 percent. the bank kept the forecast unchanged, but improved the forecast for 2022 to 3.3 percent.

“If we have a stricter quarantine in three weeks, the annual forecasts will be too optimistic, the decrease could be closer to 2 percent,” he says.

Although SEB Bank forecasts that the economy will grow 3% in 2021, GDP will remain negative in the first quarter of next year. SEB Bank expects a faster recovery from the second quarter of next year, as the vaccine will be available at that time.

“After the announcement of the first quarantine in Lithuania, we analyzed the possible impact of the COVID-19 pandemic on the country’s economy very cautiously, but the country’s economy held up much better than we feared. Now, with the start of the second quarantine, there appear to be a number of signs that the impact of the pandemic on the economy should be significantly less than in the spring, at least in the next few weeks.

Restrictions on businesses and residents are more lenient and most of us are more prepared for them. However, the anxiety that reality will surprise again, only this time, unlike spring, in a negative way. This crisis is epidemiological. The economy will have to adapt to those requirements that are necessary to reduce human losses until we have an official vaccine.

The quarantine in Lithuania is likely to last more than three weeks, and the likelihood of stricter restrictions is quite high. It is possible that in the last quarter of the year, Lithuania is no longer the country that has experienced the smallest drop in GDP in the countries of the European Union ”, says T. Povilauskas.

Comparing the first quarantine with the current one, according to the economist, the directions of the service and production sectors stand out.

“If the production fell in the spring of this year, now the producers are quite normal about the trends in the volume of activities in the coming months, I do not think that the production could fall sharply. It is a good sign for our country, which is heavily influenced by the industry. Therefore, we do not assume that the industry does not decline as in the spring. Production will not stop to the extent that it did in the second quarter.

However, the service sector will be affected, depending on the constraints. In many EU countries, the restrictions do not appear to be as severe as in the spring. For this reason, we value the sector better than in the spring, ”says the economist.

Obviously, the second quarantine will once again be the most difficult for accommodation and catering companies and art, culture and leisure companies. They employ nearly 70,000. workers. In the spring, the company had only two options: declare downtime or fire.

However, the economist points out that employers have learned from the lessons of the first quarantine that it is not worth laying off workers, so it is expected that a significant number of workers in this sector will be declared inactive in the near future. The number of workers in downtime could reach 50,000 in November and December, but it would still be a much lower number than in April.

“Now there will be layoffs in the accommodation and catering sector, where about 40 thousand people work. workers. At the national level, this is not a disaster, ”he says.

Changes in the labor market from the middle of the year to the end of October exceeded expectations, and the number of employees increased rapidly. Only at the end of September the number was 17 thousand. less than a year ago in the same period, says T. Povilauskas.

“In the near future, unemployment due to seasonality and the epidemiological situation will increase and the number of employees will decrease,” predicts the economist.

SEB Bank forecasts that the unemployment rate calculated by the Department of Statistics will be 9.8 percent in the last quarter of the year, and will begin to decline more rapidly in the middle of next year: the annual average unemployment will reach 8.3 percent. hundred.

Sodra data shows that wage growth returned to pre-pandemic levels in the third quarter. T. Povilauskas predicts that wages will grow more slowly in the fourth quarter. According to him, those with the lowest incomes are likely to suffer the most again.

Although the fourth quarter is slightly weaker, the median salary before taxes will rise 7% this year. We forecast that next year the average salary in the country will grow more slowly than this year: 4.5 percent. This will be mainly influenced by the lower growth of the monthly minimum wage, although the economist points out that it is more likely to remain unchanged and that the wages of those who work in the public sector will increase more slowly.