[ad_1]
Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania. Photo by Judita Grigelytė (VŽ).
Based on the updated benchmark scenario, the Bank of Lithuania (LB) forecasts that Lithuania’s GDP will decrease 9.7% this year (and grow 8.3% next year). In March, GDP was expected to drop 11.4% this year.
“There is a high probability that this year’s annual result will be better than we predicted.” The economic situation is a little better than we expected in March, “said Vitas Vasiliauskas, president of the LAC Board, on Friday.
“It is true that we are the most pessimistic in terms of other forecasts,” added V. Vasiliauskas.
[infogram id=”cbe4c6f3-1d88-4dad-aa79-9e7800f4c993″ prefix=”LEj” format=”interactive” title=”Skirtingos BVP prognozės 2020 06 05″]Banks are better able to withstand shocks.
He spoke about this when he presented LB’s Financial Stability Review, in which the central bank notes that the country’s financial system is better prepared to withstand shocks than during the previous crisis.
It is claimed that banks could resist the withdrawal of a third of deposits, i. that is, even five times more than the largest decrease in deposits in history during the previous crisis. Deposits in the banking sector decreased mainly in 2008. in October – 6.2%.
V. Vasiliauskas also noted that although there are currently 3,500 unsold homes in Vilnius, he does not expect a significant correction in residential property prices.
“Changes in property prices are possible, but we do not expect any price shock,” said the LB chief.
The Bank of Lithuania forecasts that the inflation rate will reach 0.6% this year and increase to 0.9% next year.
“Without a doubt, as we are a convergent economy, prices in Lithuania will grow faster than in the euro area,” V. Vasiliauskas said to VŽ’s question about price changes.
Inflation, LB forecasts, 2022 should increase to 1.7%. Growth will be primarily driven by rising oil prices from current levels.
LB notes that Lithuania’s economy and financial system withstood the first wave of shock due to the coronavirus outbreak (COVID-19) better than expected. Recent signs from the economy suggest that the darkest scenario can be avoided. However, uncertainty about the prospects for economic recovery remains high and the effects of the pandemic represent the greatest risk to the stability of the financial system. However, responsible loans and accumulated reserves will help banks bear losses, even in a highly unfavorable scenario.
“The economic health status seems to be stabilizing, but the farm still needs intensive therapy, and long-term rehabilitation is still awaited until full recovery,” continued V. Vasiliauskas.
According to him, a stable and well-armored financial system has an important role to play in bringing the economy back to normal. Particular attention should be paid to the precise and effective implementation of the stimulus measures.
Why change predictions?
In the event of a pandemic, LAC had three economic development scenarios in March. The first scenario of a strong recession and longer recovery (GDP decreases 11.4% in 2020) is a U-shaped recession. The second is the scenario of prolonged recession and recovery (20.8% of GDP in 2020) , a prolonged U-shaped recession. The third scenario is a sudden recession and a rapid recovery (3.4% decline in GDP in 2020), a V-shaped recession.
According to June 5. updated base, i. and. The most likely scenario is that Lithuania’s GDP will fall 9.7 percent this year. Under this scenario, the economic recession will not be as severe as previously thought.
The smallest decline is forecast for a relatively good first-quarter GDP result (+ 2.4%), less pronounced than expected by the decline in trade (-14%) and industry (-12.5%) in April, which is likely be the worst month. The country’s economy.
Recent economic indicators (decrease in employment since the beginning of May, recovery in population movement and domestic demand, decrease in electricity consumption) suggest that the economic situation stabilized last month and will begin to recover in the second half of the year. .
The baseline scenario is based on the assumption that strict quarantine measures will be lifted in May and that demand and the economy will recover relatively slowly.
Unemployment is projected to rise to 11.9% this year due to the effects of the pandemic, with average wages falling 2.6% and inflation 0.6%.
Under the favorable scenario, GDP is forecast to decline by 7%, based on the assumption that the global virus outbreak will be controlled fairly quickly and that the global and Lithuanian economies will gradually return to normal without significant negative consequences in the long run. term. This scenario, although optimistic, is not very far from reality, which makes it close enough to the reference scenario.
In the worst case, GDP would drop 17%. It is assumed that the spread of the virus in the world cannot be controlled until medical means are invented to combat the virus. Therefore, the activity of the world and Lithuanian economies remains moderate and, in the long run, the economic potential is more damaged.
The consequences of the COVID 19 pandemic are by far the greatest risks to the country’s financial system at this time.
According to LB economists, the loan portfolio of companies directly affected by COVID-19 amounts to around 4 billion. Eur, t. and. about 40% of the corporate loan portfolio. Rapid response measures and accumulated corporate reserves helped companies resist the liquidity shock caused by the quarantine in Lithuania, the participation of companies in financial difficulties in April. it increased relatively little and remained unchanged in early May. However, the consequences of the pandemic worldwide will reduce the export opportunities of Lithuanian companies and may pose a risk to their solvency in the future.
The announcement of the quarantine has had a significant impact on the Lithuanian credit market.
The flow of new loans decreased, the volume of loans with deferred payments increased. Within 10 weeks after quarantine was introduced, the flow of new home loans decreased by 30%, consumer and other loans by 37%, and business loans by 17%. However, the demand for loans is already returning to normal, with data showing an increase of around 18% in May compared to April. LAC’s decision to reduce the anti-cyclical capital amortization rate for banks from 1% to 0% also improves opportunities to lend to companies and individuals.
The problem is stagnant corporate settlements
The risk of the consequences of COVID-19 in the financial system will be limited by the improvement in the financial situation of companies and banks for a decade and responsible loans, which has prevented the formation of credit bubbles.
Banks have a strong capital buffer and companies have sufficient reserves to withstand a short-term liquidity shock. It is true that compared to the previous crisis, companies depend much more on mutual indebtedness (commercial loans and corporate loans, totaling more than € 12 billion) than on bank financing (around € 9 billion). If the effects of the pandemic were to continue and the chain of agreements between them began to break, it would pose additional risks to corporate finances.
“However, I want to emphasize that the liquidity situation in companies is really better than in 2008,” V. Vasiliauskas told reporters.
Recent stress test results suggest that banks are well prepared to withstand the economic shock. Even if the harsh scenario were to materialize, although the banking system’s capital adequacy ratio would drop by almost 10%. p., but would still have a margin above the minimum requirements.
PHOTO GALLERY WEB_LB Forecast_Vasiliauskas (31 photos)
Write a comment
[ad_2]
