The Bank of Lithuania has downgraded its economic growth forecast for next year. Instead of the previously planned 3.4%, the country’s economy is now expected to grow by only 0.9%.
“The forecast for 2023 is being significantly downgraded. This is mainly related to the weaker household consumption,” said Gediminas Simkus, board chairman of the Bank of Lithuania.
However, Lithuania’s central bank has kept this year’s GDP growth forecast at 2.1%.
“The worse assessment of recent economic development is offset by significantly better economic indicators in the first half of the year,” Simkus said.
Despite the slowdown, average annual inflation is predicted to reach 18.3%. It is expected to fall next year but will remain high at 8.4%.
“The inflation is too high, and all institutions need to do their part to ease this burden. The good news is that the rise in inflation is starting to ease. Therefore, we conclude that we are somewhere close to the peak of inflation,” the central bank’s board chairman said.
According to him, Russia’s war in Ukraine will have a major impact on the Lithuanian economy in the coming years. Significant fluctuations in energy prices are adversely affecting consumer confidence, leading to more cautious household consumption and limiting the willingness of businesses to invest, Simkus noted.
“Consumer confidence in August was close to its lowest level in a decade. This is an indication of how consumption in Lithuania will change. Households will be most inclined to give up more expensive purchases,” he said.
According to him, there are also other signs of an economic slowdown. For example, manufacturing, retail sales and exports of Lithuanian goods are all on a decline.
However, despite the slower economic growth, the Lithuanian labour market is still experiencing a shortage of workers. The unemployment rate in the country has fallen to 5.2%.
In the face of a shortage of workers, average wages are expected to continue to rise, albeit at a slower pace than in the past few years. Average wages are expected to increase by 12.7% this year and by 8.7% in 2023. (LRT/Business World Magazine)