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Sigismund Mauricas, chief economist at Luminor Bank, says that although the next few years may turn out to be a golden age for Lithuania, the extremely rapid rise in property prices and the resulting threat of throwing the economy out of balance are concerning.
“What I am afraid of and what is happening is that we are blowing up property price bubbles because we are seeing what is happening with bitcoin, what is happening with real estate prices (RE), (… ) stock prices. The K-shaped rally will continue to be felt not only in the real economy, but also (canvas) among financial markets and sectors where money can be invested. This is one of the biggest challenges. ” he said when presenting the economic forecasts.
Ž. Maurice pointed out the need to protect the economy from imbalances.
“I’m not very optimistic now that interest rates will be very low for a long time. Because manual braking will one day have to at least communicate with central banks to start, because otherwise we could be even more lopsided in the economy than if we did. it would have been unbalanced by a pandemic. And it will be especially visible in the second half of next year, “he said.
However, the economist stressed that “this year is a year of opportunities for Lithuania.”
“We will get unprecedented EU support, we are in a really good starting position in terms of a really mild economic contraction and if we don’t make fundamental mistakes we have really huge growth potential,” he said.
“The next 2-3 years may be another golden age for Lithuania”, Ž. Mauricas.
However, according to the economist, the current restrictions on quarantine delay the prospects for economic recovery and increase the risks of negative side effects of the quarantine. One of them is the growing economic segregation between different business segments.
“The longer the quarantine, the more the segregation between the different sectors increases. When looking at the mobility data, we see that in Lithuania, mobility in non-food commerce and leisure places is one of the lowest in the EU (…), while mobility in grocery stores is one of the highest in the Baltic States. These flows are redistributed ”, said the economist.
According to him, if quarantine restrictions are lifted in March, gross domestic product (GDP) growth in 2021 should be positive. However, the extension of quarantine restrictions does not rule out the possibility of a recession.
Ž. Mauricas noted that the excellent performance of the Lithuanian economy in 2020 was determined both by the rapid recovery of domestic consumption after the spring quarantine (recovery of the V shape) and by the sustainable development of exports. Furthermore, the Lithuanian real estate market, contrary to fears, avoided a recession.
The economist also stressed that the performance of Lithuania’s IT and financial services exports were gratifying.
“According to the export of financial services and information technology, Lithuania has emerged as a leader in the Baltic countries, for the first time we have surpassed Latvia and Estonia and we have become leaders in these services in the Baltic countries. And this was determined not only by the rapid development of Vilnius, but also by Kaunas, ”he said.
At that point, a repeat of the rapid economic recovery seen after the first wave of COVID-19 last spring should be helped by a good index of consumer confidence in the country.
“Exceptionally good consumer confidence. Even in January (…), consumers were really very optimistic about the future. Consumer confidence in Lithuania ranks fifth in terms of” goodness “in the EU (…). It is significantly higher to the EU average, and we stand out in the context of the Baltic countries: Latvia and Estonia have much less confidence. It gives us great hope that when we release the quarantine restrictions, we will repeat the scenario we had last summer, that is We will have a fast enough recovery ”, he assured.
According to Luminor, Lithuania also avoided a wave of emigration during this crisis and, due to increased immigration, the total population of Lithuania, for the first time since 1990, increased. Positive developments were also observed in the labor market: wage growth did not decelerate and reached double digits, while the number of employed decreased only slightly.
“In the spring of last year, the European Commission predicted that the economic recession in Lithuania in 2020 would reach 7.9 percent and will be higher than the European Union average. However, the pessimistic forecasts did not come true: the European Union’s economy contracted 6.4 percent and Lithuania’s only 1.3 percent, “said Ž. Mauricas.
However, it warns that last year’s V-shaped rapid recovery scenario may not repeat itself this year. If the quarantine is lifted in March, Lithuania’s GDP growth is expected to be positive, reaching 1.8 percent. At that point, if the quarantine extends into May, we are likely to experience 1.7 percent. recession. In the most pessimistic scenario, assuming that one or other of the quarantine restrictions or the prevailing uncertainty remains until July, the economy could fall by up to 8%.
Ž. Mauricas notes that there is a danger that small businesses that have temporarily gone into the shade during the quarantine may remain in them after the end of the quarantine, increasing the share of the shadow economy in Lithuania for a long time. Limited employment opportunities in the leisure services sector can lead to emigration of young people.
It is also emphasized that Lithuania’s budget deficit was exceptionally high last year due to pre-election spending, and this year it is increasing due to an extremely strict and prolonged quarantine. Government deficits and public debt, which are growing faster than in other countries in the region, could reactivate the tightening of the “tightening of the belt”, which would lead to a deterioration of the expectations of the population and companies.
Monika Grigutytė (ELTA)
