Linas Jegelevičius
Although summer lulls everybody, the coming months of autumn and winter in Lithuania and elsewhere will perhaps inevitably sink all of us in an unpredictable gloom – literally and figuratively.
«There is a lot of unpredictability – now and, especially, as to what expect from the coming months. A war is unpredictable and the war in Ukraine is not an exception. Nowadays, we all are very intertwined – first of all, economically. Alas, the economic ties we had and were fostering for years are in shatters. The Lithuanian Government has not come up with a plan yet how to replace the lost markets in Russia, Belarus and China. Reality check can be harsh,» Danas Arlauskas, the head of the Lithuanian Business Employers’ Confederation (LBEC), told BNN.
In his words, some of the Government-touted new export routes, like, Singapore and Taiwan, for example, «not a bit» outweigh what the vast Chinese, Russian and Belarusian markets were proposing.
Lithuanian businesses that suffered difficulties due to China’s sanctions, following Lithuania’s unilateral decision to allow Taiwan to open representation in Vilnius, can now apply for working capital loans.
A stimulus financial facility prepared by Lithuania’s Economy and Innovation ministry allows businesses to receive loans of up to 5 million euros, and groups of companies up to 10 million euros, with a total planned budget reaching 130 million euros.
But Arlauskas remains cautious: «The three economy whales the whole economy has been hinged on for years – China, Russia and the United States – are sailing apart now, which is a bad omen. Energy supply shortages coupled with disruptions of supply chains on the whole, consequently the omnipresent record-high inflation and just an uncertainty ahead amid the geopolitical tumult will keep hitting Lithuania, the EU and the world economy altogether,» the LBEC head accentuated.
Agreeing, Dainius Kepenis, a Lithuanian opposition MP, told BNN that, «no doubt»,
the economic situation will continue deteriorating.
«The war, the record-high inflation, a new wave of the coronavirus will continue plaguing all of us. Some other spillovers and contingencies cannot be ruled out too. I do not see the Government doing much in tackling the mounting challenges, especially, the prices,» the MP underlined.
Lithuania’s Prime Minister Ingrida Simonyte has said this week that any shortage of natural gas in Europe amid a cut in deliveries from Russia affects gas prices in Lithuania, even though the country does not buy Russian gas.
According to the PM,
the Lithuanian government is taking all steps to make sure the country has enough gas in winter.
However, the government head predicts that it will not be easy for the European Union to secure its gas supply if Russia sharply reduces or cuts off gas supplies to the bloc’s countries.
«If the supply of gas is stopped or drastically reduced, as it is now, and the repairs (to the Nord Stream 1 pipeline) do not end, just like the repairs to the Druzhba (oil pipeline from Russia to Lithuania) never ended, then some EU countries are going to have considerable problems filling up their storage facilities and securing gas supplies, especially those that have no alternative supplies,» she said.
With gas prices skyrocketing, Lithuanian cities – in particular, in Vilnius – are desperately looking for ways to cut heating bills. Among the suggestions is burning mazut, a low quality and very polluting fuel oil, which has drawn criticism from environmentalists and politicians.
The average price of gas in the Lithuanian market area of the GET Baltic gas exchange hit 157.78 euros per megawatt-hour (MWh) on July 20, up from 97.6 euros in May.
Meanwhile, Finance minister Gintarė Skaistė claims that the European Union’s sanctions against Russia have a «limited impact» on the Lithuanian economy, but Russia’s ongoing war in Ukraine has a negative impact on it.
«It’s not the sanctions that affect our economy, but the war, and it affects much more strongly than the sanctions themselves,» Skaistė said at the press conference on Wednesday, July 20, after the meeting with European Commissioner Mairead McGuinness in Vilnius.
According to the minister, the direct impact of the sanctions is felt most by Lithuanian Railways and Klaipėda Seaport, but the biggest damage is still caused by the war.
«Despite the fact that the situation is difficult and we are all affected, economic growth remains. If we initially predicted the growth of the Lithuanian economy above 4 percent this year, now it will remain, but it will be only about 1.6-2 percent, next year, about 3 percent,» said the minister.
According to Skaistė, in any case, possible losses due to sanctions are smaller than doing nothing.
Meanwhile, the weakening of the euro is a headache for Lithuania’s central bank.
A member of the Board of the Bank of Lithuania, Marius Jurgilas, says that
the weakening of the euro exchange rate against the US dollar is «primarily related» to the decisions of central banks to tighten monetary policy at different rates.
Although the European Central Bank (ECB) does not seek to directly influence the exchange rate, according to the economist, the weakening of the euro also affects price stability, which is what monetary policy makers seek.
«The weakening of the euro is a challenge for inflationary processes, because the euro zone largely imports energy resources, and we buy energy resources not in euros. Translated into euros, when the euro weakens, the price goes up. All these energy components are included in the final consumer product. Prices for the end user would then tend to increase. Therefore, the weakening of the euro is a headache for the central bank,» he says.
The International Monetary Fund (IMF) mission led by Borja Gracia, which finished its work in Lithuania in June, noted that Lithuania’s economy remains remarkably resilient.
Even in the background of new challenges and uncertainties posed by Russia’s war against Ukraine, a positive economic growth is expected, which should reach nearly 2 percent of the GDP this year.