News2020.03.12 16:53

EU faces coronavirus-induced recession, but Lithuania should be safe – economist

BNS 2020.03.12 16:53

As the coronavirus pandemic is spreading worldwide, there is a growing risk of an economic recession in the European Union, Žygimantas Mauricas, an economist at Luminor bank, says.

Past figures show that epidemic-hit countries often face recession, he says. The good new, however, is that in most cases does not last more than two quarters, according to Mauricas, and an epidemic's economic impact is strongest during the first months.

Read more: Lithuanian government announces school closures and travel restrictions to prevent coronavirus

“If Lithuania does not become another epicentre of the epidemic and we manage to get through this with a fairly small number of cases, there's a really good chance of avoiding a recession,” Mauricas told BNS.

“Lithuania is not too dependent on international tourism, and air transport sector is not very important. Moreover, our industry is not tightly integrated into global supply chains,” according to him.

An indication of that is the fact that the industrial disruption in China is almost over and it had little effect on Lithuania, Mauricas said. Only several Lithuanian companies faced problems because it needed components from China.

Meanwhile, other companies have been getting more orders as businesses have been looking to replace disrupted supply from China, often ready to pay more, according to Mauricas.

Read more: No subsidies for businesses due to coronavirus – Lithuanian PM

“I believe that, unless Lithuania becomes another virus epicentre, growth will slow, maybe to zero percent [or] we will have a formal recession in the first and second quarter, but the economy will recover at the end of the year and we will finish it with a plus,” he said.

However, if the coronavirus epidemic in Lithuania reaches Italian proportions, “we will probably not manage to escape recession,” according to Mauricas. Even so, the recession would not last long.

“Looking at past cases, including the SARS outbreak in 2003, the swine flu in 2009 or even the Spanish flu which killed 50 million people, their most active periods lasted up to two quarters,” he said.

“Sometimes epidemics reemerge, but in that case their economic impact is weaker, since economic slowdown is due not only to the spread of the virus but also the accompanying emotions. When we are dealing with something unknown, the reactions often make more serious damage than the disease itself,” Mauricas said.

Years following epidemics are often strong economically, he added, as central banks and government often deploy stimulating measures and economic growth exceeds its potential.

“I wouldn't be surprises it growth in Lithuania stood at 4 percent or more next year,” Mauricas estimated.

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