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“The optimistic economic development scenario, refined in the spring, is becoming a reality. Export activities that have pulled the Lithuanian economy out of the pandemic well continue to enjoy excellent results. Importantly, this breakthrough in manufacturing it is not just the result of the success of large companies. Even after excluding the large and concentrated chemical and mineral fuel industries, the remaining producers also managed to take advantage of the open niches and achieve double-digit annual production growth rates, “he says. I. Genytė-Pikčienė.
In addition, according to the INVL economist, after the end of the second quarantine, another gear of economic development has begun, household consumption.
“With the acceleration of vaccination and the release of quarantine restrictions, the population hastened to recover. They allocated more funds for consumption, especially in areas that were restricted: travel, recreation, culture, family celebrations, entertainment and active leisure This behavior of the population increased retail turnover, allowed the recovery of the catering, accommodation and entertainment businesses most affected by the pandemic, and the development of the Lithuanian economy became even more balanced, ”says INVL’s chief economist.
Prospects are clouded by rising prices
However, I. Genytė-Pikčienė points out that the recovery of household consumption may be hampered by the rapid increase in prices. According to preliminary data, in September, annual inflation in Lithuania reached 6.3 percent. Previously, these annual price increases were observed only in 2009.
“Such high inflation rates are due to temporary external factors. Pandemic and quarantined supply chains are slowly recovering and cannot meet demand from the global economy, which has recovered dramatically this year. Due to these imbalances, we observe the shortage of various raw materials, components and end-use goods in international markets and the prices that set historical records ”, said the INVL economist.
Contrary to what was thought in the spring, the international commodity market did not return to equilibrium in the autumn. In addition, new inflation hot spots have emerged in energy markets.
“The gas crisis in Europe and the decision of the OPEC + oil-producing countries not to change their oil supply strategy, despite declining stock levels in developed countries, are an additional catalyst for future inflation. The rise in the price of energy resources affects the costs of many goods and services, so that in the long term consumers will not only feel the direct impact, “said the INVL economist.
For the above reasons, INVL’s chief economist raises the average annual inflation forecast to 2.7 percent. at 4%, and expect 3.8% next year. average annual growth of consumer prices.
The pulse of the labor market has recovered
Despite the challenges of the pandemic and this year’s long lockdown, labor market indicators are improving rapidly. According to INVL’s forecasts, the average unemployment rate is expected to drop to 7.2 percent this year and 6.5 percent next.
“Significantly fewer unemployed people register with the Employment Service than last year, but the number of new jobs is record. The indicators of the number of insured and beneficiaries of unemployment benefits published by Sodra have already practically returned to the pre-pandemic level. With the rapid recovery of the economy, the unemployment rate in Lithuania decreased and was again lower than the European Union average, ”I. Genytė-Pikčienė illustrated the improvement in labor market trends.
Wage growth is outpacing inflation
Rapid economic growth and the recovery in the pulse of the labor market are leading to impressive wage growth. According to INVL forecasts, the average gross salary will be 11 percent this year. higher than last year, and next year it will grow by 12 percent.
“Inflation is a strong argument to increase wages, social benefits and pensions more quickly. It is already known that up to 14 percent. The monthly minimum wage will be increased and the amount of the official base salary will be increased. It is being negotiated higher pay for education and health workers. Employee shortages and structural discrepancies in the labor market are driving wage growth in the private sector, “says I. Genytė-Pikčienė.
According to the economist, while the prices of goods and services grow more slowly than wages, the purchasing power of the population increases.
“It just came to our knowledge then. However, the economic development in Lithuania is uneven. Income and its growth rates, when analyzed in different sectoral, occupational, social or regional sections, vary widely.
It is difficult to avoid the worsening of inflation at that time, when practically everything becomes more expensive, “said INVL’s chief economist. According to her, given the acceleration of inflation, the record amounts of deposits in bank accounts are also worrying. Unemployed and uninvested savings do not generate benefits for the population, thus depreciating rapidly as inflation accelerates.
Lithuania remains dependent on cheap labor intensive activities
INVL’s chief economist warns that such rapid and long-term wage growth and too low a level of investment in technological renewal threaten the country’s export competitiveness.
According to her, the Lithuanian economy is still highly dependent on low and moderately low value-added economic activities, which are labor intensive and sensitive to rapid wage growth. The economist says that companies could solve this problem by investing in technological innovation and automation. However, the level of investment is insufficient compared to other Central and Eastern European countries.
“It is worth welcoming, because structural changes are really taking place. The role of high-value-added activities in the economy is growing and strengthening, the ecosystem of promising foreign investors, prosperous startups and fintech companies is growing. However, until now the Lithuanian economy is based on traditional sectors that are sensitive to significant changes in labor costs, ”says I. Genytė-Pikčienė.
