Lithuanian economy not in recession, just in ‘short-term dip’

Prime Minister Ingrida Šimonytė insists Lithuania’s economy is not in recession, despite indicators suggesting the country’s GDP is contracting this year.

“If the forecasts that are relevant at the moment, including the Bank of Lithuania’s [...] hold, I don’t think we can talk about an economic crisis,” the prime minister said in an interview with BNS.

On Monday, the Bank of Lithuania published its forecasts, estimating that the country’s GDP will contract by 1.3 percent this year and grow 2.7 percent in 2024.

Back in March, the central bank expected Lithuania’s economy to grow 1.3 percent this year.

According to Šimonytė, although the forecasts have worsened, they suggest that the economy will experience a “short-term dip”.

“It seems that the same is expected by economic actors, so if we look at the labour market and wage dynamics, where the Bank of Lithuania’s forecasts have improved in principle, it seems as if companies are thinking: we need to hold on to workers because they will be needed soon, and then later it will probably be difficult to find them at the same wages,” the prime minister said.

Economy (associative image) | Pexels

Some companies have built up reserves over the last few years, industry is growing faster than elsewhere in Europe despite the downturn, and investment prospects are improving.

According to Šimonytė, people’s purchasing power is also expected to grow, while annual inflation will continue to fall and reach single digits in June.

In May, annual inflation stood at 10.7 percent.

The head of government also expects that putting together next year’s government spending bill will probably be the most challenging task of her term in office, as the EU’s post-pandemic loosening of fiscal rules will expire in 2024, which will require Lithuania to balance its budget balance over time.

Šimonytė insisted that strategic infrastructure projects and national agreements on education and defence, including the commitment to bring teachers’ salaries in Lithuania to 130 percent of the average wage, will be her government’s priorities.