Linas Jegelevičius
When things in Lithuania in 2023 just do not seem rosy for most, Nerijus Mačiulis, chief economist of Swedbank Lithuania, has stirred a buzz this week by claiming that the country will shun an economic crisis this year and, if recession comes, it will be mild and short-term.
««What we predict is not a crisis – there may be a slowdown in economic growth, there may be a couple of quarters of negative changes. The crisis is, first of all, unexpected and creates difficult-to-manage situations, like the pandemic, war in Ukraine, global financial crisis. These are crises that are difficult to manage and have long-term consequences,» says Mačiulis.
«No matter where we look, Lithuania’s economy is very balanced, competitive, without any obvious imbalances. So far, it is not easy to see the signs of the end of prosperity in Lithuania,» the economist concludes.
Namely the word «prosperity» angered many.
«To me, many of our leading economists seem to be too much focusing on macroeconomic indicators. I’d rather see how they translate into a better life for everybody – not only in central Vilnius, but outside it too, especially in the provinces where many people struggle to make ends meet,» Dainius Kepenis, an opposition MP, told BNN.
The economist maintains that Lithuania’s GDP will go down by 0,3 percent in 2023.
«However, this decline should be short-lived, and next year, Lithuanian GDP growth of 1.8 percent is already expected,»
Mačiulis says.
According to him, interest rates will rise again this year, but will start to decrease next year.
Although record-high inflation, unseen for a quarter of a century, hit Lithuania in 2022, the consumption of population did not shrink significantly, he notes. In fact, its real volume increased by 1,3 percent during the year.
Mačiulis believes that rapid growth in population, employment and wages also contributed to this.
«Last year, we saw a record high net immigration, which offset the negative natural population change, so the population in Lithuania increased by almost two percent. Many new arrivals filled vacant jobs, boosting employment by more than five percent and increasing average wages by nearly 13 percent. However, in recent months, we have already seen retail trade growth trends that have expired, which will likely continue this year as well,» the economist predicts.
According to Swedbank, wage growth will slow to 9,5 percent this year and will be only slightly faster than average price growth. Therefore, real household consumption expenditure will remain unchanged this year, while exports are expected to contract by 0,5 percent after several years of impressive growth, the analyst says.
«Weakening demand in neighbouring countries, major eurozone markets and the Nordics is already reflected in declining industrial export orders, which have fallen to their lowest level in three years.
So far, wide-scale problems are not yet visible, but in some sectors, not only export volumes, but also a decrease in employment are expected.
However, still, we cannot call such economic trends a crisis – it is only a cooling down after a long period of prosperity or even overheating,» says Mačiulis.
He predicts that inflation in Lithuania will drop to a single-digit later this year.
Swedbank Lithuania’s chief economist prognosticates that the economies of many Western countries will experience stagnation in 2023, but beneath these figures , he says, there are big differences. In his words, some sectors, such as renewable energy, mining and tourism, are booming, while others, such as real estate, may face more serious challenges.
Mačiulis is not the only Lithuanian banking pundit, who believes that Lithuania will weather the adversities well.
Recently, economist Alexander Izgorodin said that
the first three quarters of 2023 will be challenging, but far from the dire situation in 2008–2009, which wreaked economic havoc all over the world, and in Lithuania too.
According to the economist, «there will be no big drama» – a fall in the first and second, and possibly, third quarters will be replaced by recovery in the last quarter of the year.
«Lithuania’s economy is perfectly prepared for a difficult time, if we fall a bit, we will fall very similar to the average of the European Union or the euro zone…Lithuania’s debt is one of the lowest in the European Union, it reaches about 40 percent of our GDP. We have a large foreign trade surplus at fixed prices, which means there is no imbalance in the economy,» Izgorodin said.
International economy watchdogs, like he Organization for Economic Cooperation and Development (OECD), has also said that Lithuanian economy will sail well through 2023, growing approximately 1,3 percent, thus outpacing other countries.
«There will be a slowdown for sure but Lithuania’s economy will grow 1,3 percent in 2023 – at a more rapid pace compared to other countries. However, this will depend on the war, on the economies of other countries. Other factors beyond Lithuania’s control will have an even stronger impact on economic slowdown,» Alvaro Pereira said during a presentation of OECD’s Economic Survey of Lithuania 2022 in Vilnius at the end of 2022.
«As far as economic reforms are concerned, Lithuania is surprising. It is resilient, therefore, our forecast (for Lithuania) is better than for other countries» he underscored.
However, for some, Mačiulis’ gleeful optimism is just out of touch.
«Mačiulis already knows how we will live this year. And we will live, according to him, very well, because there is no crisis in Lithuania and – hoora – it is not visible in the near future. Economists are interesting people. They look at a lot of small numbers and always see something positive in them, but they tend not to see what is obvious even to an ordinary citizen – a decline,» an anonymous commentator says on respublika.lt
«It turns out, we’re thriving. Not a bad diagnosis for a country where more than half a million people live below the poverty line…And this record inflation was not yet a crisis?
And there is no demographic crisis. It doesn’t matter that there are fewer births than deaths.. All things considered, it seems that we will live as usual: economists will prosper, and those citizens who dare not prosper will drown in the waves of an inexorably rising economy,» the commentator concludes wittily.
The OECD expects Lithuania’s gross domestic product (GDP) to grow 1,6 percent this year and that the average inflation will fall to 10,4 percent later this year.
Yet the OECD recommends to Lithuania to tighten fiscal policy at an appropriate pace to help mitigate inflationary pressures, to address problems related to population ageing, to help households and businesses cope with rising energy costs using targeted and temporary measures, and to respond to negative tendencies in the real estate market in a timely manner.
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