Lithuania’s economy may shrink by at least 1.2% this year due to the coronavirus, economists from the central bank estimate. This would be an “optimistic” scenario, according to the bank’s chairman Vitas Vasiliauskas.
“We believe the economy could contract by 1.2%, meaning that the former baseline scenario changes by almost 4%. But, once again, I would say it’s an optimistic scenario,” Vasiliauskas said on Monday.
He estimates that the economy will feel the biggest blow in the second quarter, and the country could “expect a little more stability” in the second half of this year.
To mitigate the negative impact of the coronavirus on the Lithuanian economy, the Bank of Lithuania and the European Central Bank are launching additional economic stimulus measures in order to ensure sufficient lending to the real economy.
According to Vasiliauskas, relaxed capital buffers, worth 187 million euros, would allow banks to provide additional 2 billion euros in loans to businesses and households.
In order to boost corporate and household lending, the Bank of Lithuania will relax capital and liquidity requirements for banks and will relax additional capital buffers (e.g. the countercyclical capital buffer rate) if deemed necessary.
If needed, the Bank of Lithuania and the ECB could grant banks cheap liquidity loans, more than 1 billion euros in total, against collateral at favorable rates in order to further ensure sufficient lending to the real economy. (LRT/Business World Magazine)