Analytics, Economics, EU – Baltic States, Financial Services, GDP, Lithuania

SEB forecasts that the Lithuanian economy will contract by 6.7% this year due to the coronavirus crisis, but will recover by 5.3% next year, based on the main scenario provided in the group’s latest Lithuanian economic outlook. In 2022, the country’s gross domestic product (GDP) should expand by 3%.

Early in May, SEB expected Lithuania’s GDP to shrink by 8.7% this year and to rebound by 6.1% in 2021. “This means that Lithuania would get back to the pre-crisis level early in 2022,” SEB Lithuania's economist Tadas Povilauskas said at the presentation of the economic outlook.

The rate of Lithuania’s economic contraction forecast for 2020 had been revised up in the light of the latest manufacturing and retail trade statistics, which showed that the economic downturn in the second quarter had been less substantial than projected, he said.

The economist also mentioned favorable conditions for the grain harvest, which should well exceed its last year’s level in 2020.

However, Povilauskas also warned that the coronavirus had not yet disappeared and the economy would not move forward at full steam as long as it was not defeated both in Lithuania and across the world. “If Europe and Lithuania are hit with a new wave of infection, economic performance will be much poorer than we forecast at present,” he said.

Even though the likelihood of a new forced economic shutdown was insignificant, consumers might once again cut down their spending sharply if the number of infections were to increase in fall, the economist added.

SEB expects the harmonized average annual inflation in Lithuania to reach 0.8% this year before rising to 2.2% in 2021. According to Povilauskas, the inflation rate this year has been mainly pushed down by depressed energy prices.

The average unemployment rate in Lithuania should increase to 9.3% this year, from 6.3% in 2019, and should go down to 8.4% in 2021.

Meanwhile, the general government sector will this year record a deficit of 8.5% of GDP, which, however, will be replaced by a surplus of 3% in 2021.

The general government sector’s debt will this year increase to 49% of GDP, from 36.2% in 2019, and will grow further to 50.5% of GDP in 2021.