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As announced, the Chairman of the Board of the Bank of Lithuania, Vitas Vasiliauskas, will speak about it at remote annual meetings of the International Monetary Fund (IMF) and the World Bank.
“While the latest forecasts are no longer as bleak as they were at the beginning of the pandemic, the road to recovery will be long and bumpy. It is important not to stop stimulating the economy too soon. However, we must do so responsibly and allocate funds to measures that guarantee long-term sustainable growth, such as the digitization of the economy and the green direction ”, says V. Vasiliauskas.
According to him, a large part of the promotion is financed at the expense of future generations, that is, borrowed funds that will have to be repaid. Therefore, advocacy politicians, international institutions, and national agencies should focus on using these funds not only to ease economic pain in the short term, but also to ensure healthy economic growth in the long term.
The IMF, which released the latest forecasts, is forecasting 4.4 percent this year. contraction of world GDP. This is 0.8 percent. P. milder forecast than June. The revised global forecast was driven by better-than-expected second-quarter performance in advanced economies and a rapid recovery in China. The latter is the only major economy whose GDP is forecast to grow 1.9 percent this year. The IMF predicts that in 2021. The world economy is expected to grow 5.2 percent.
The forecast for the main Lithuanian export market, ie the euro area countries, has been increased by 1.9 percent. P. – up to -8.3 percent. Among the main economies in the euro area, the most moderate contraction is forecast for the German economy this year (-6.0%). However, the economies of the southern countries and those most affected by the pandemic will experience a deeper recession: the French economy will contract by 9.8%, Italy by 10.6% and Spain by 12.8%. Next year, economic growth in the euro area is expected to reach 5.2%.
The IMF forecasts that the Lithuanian economy will contract 1.8 percent this year. And this is the smallest decline not only in the European Union (EU) but also in Europe as a whole. 4.1 percent is forecast for next year. Lithuania GDP growth. By comparison, the IMF’s previous forecast was 8.1 percent. The contraction of the Lithuanian economy this year and 8.2 percent. growth next year.
“Despite the projected contraction of one of the smallest Lithuanian economies, it is extremely important that funds intended to promote economic recovery are used properly and efficiently and contribute to long-term economic growth and strengthening competitiveness. In the long term, this will create the conditions for a return to sustainable management of public finances, which will allow to begin to reduce the public debt generated during the crisis ”, points out V. Vasiliauskas.
According to the Chairman of the Board of the Bank of Lithuania, the long-term focus on laying the foundations for sustainable growth should be an essential objective of the future Lithuania Economic DNA Plan and the National Economic Recovery and Resilience Plan. It is essential to focus resources on the digitization of the country’s economy and public sector and on accelerating the transition to a climate-neutral economic model.
Looking ahead, the main uncertainty is the further development of the pandemic and its impact on the economy. Additional risks also stem from the growing burden of government and corporate debt and uncertainty in international trade stemming from tensions between the US and China and between the EU and the UK over the negotiation process. of Brexit. Vaccine development could be improved sooner than expected.
The public debt of the euro area will exceed 100% this year. GDP and will increase to 101.1%. Compared to 2019, the debt ratio will increase by 17.1 percent. P. US debt will skyrocket even faster: 22.5 percent. P. – up to 131.2 percent. GDP.
Despite the high level of debt in many countries and the further increase in debt levels due to the impact of COVID-19, it is important not to stop supporting the economy too soon, as the recovery of both the global economy and the Lithuanian remains fragile. This is crucial to ensure that the long-term damage to the fabric of the economy is mitigated by corporate bankruptcies, especially the rise in unemployment among small and medium-sized businesses.
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