G. Skaistė: "The economy is recovering faster than projected"
Given the acceleration in economic activity observed at the beginning of this year, the Lithuanian economy this year will grow faster than projected in March, by 2.1 %. The rapid decline in inflation will continue, with price growth slowing to 1.1% in 2024. Wages, meanwhile, will grow by an average of 9.5%, significantly exceeding the growth rate of prices and strengthening the purchasing power of the population. This is foreseen in the updated Economic Development Scenario of the Ministry of Finance.
“Lithuania’s economic recovery is gaining momentum and a further strengthening of growth is expected next year as external demand recovers. The updated projections suggest that the country's economy will grow faster this year than expected in March, while inflation will decline more markedly. As the labour market remains resilient, wage growth will remain strong this year and significantly exceed the rate of price growth. This will mean that the purchasing power of the population will exceed pre-war levels this year, thus strengthening domestic consumption,” Minister of Finance Gintarė Skaistė says.
The Economic Development Scenario prepared by the Ministry of Finance projects that after a moderate decline last year, in 2024 with stronger demand in domestic and foreign markets, Lithuania's gross domestic product (GDP) will recover, the growth rate could reach 2.1 %, and in 2025-2027 accelerate to 2.9 % on average per year.
Despite a slight increase in unemployment last year, the number of employed population in the country increased by 2.8 %, while the supply of vacant jobs increased even by 3.3 %. It is projected that with the recovery of economic activity due to strong labour demand and increased labour supply, the number of employed population will increase by 1.4 % in 2024. This year the unemployment rate should reach 7.2 %, while in the medium term it will decrease consistently.
The scenario projects that growth in average gross monthly wages this year will be more moderate than last year but will remain sufficiently fast and will amount to 9.5 %. In the subsequent years of the medium term (2025-2027), average wages could grow by 6.4 % per year.
Both this year and next year, wage growth will significantly exceed the rate of price growth. It is expected that in 2024 the rate of inflation will decrease faster than expected in March this year and will amount to 1.1 %. Lower inflation will be driven by more favourable developments in food prices for consumers and reduced pressures on the prices of non-energy industrial goods, as well as by more favourable certain developments in administered prices. The inflation rate should remain close to 2 % in the later years of the medium term.
As household disposable income continues to grow and inflation declines, the purchasing power of the population will continue to strengthen. This year, household consumption expenditure could grow by 3.3 %. In the subsequent years of the medium term, as the financial situation of the population continues to improve, household consumption expenditure could grow somewhat faster, by more than 3 % every year.
In June 2024, the European Central Bank reduced interest rates, but they are still at high levels, so this year the investment process will be moderate, spending on gross fixed capital formation (GFCF) could grow by 3.5%. In the following medium-term years, as the financial situation of enterprises improves, external and domestic demand grows faster, there is a need to increase national security, energy efficiency and invest in green technologies and measures to increase labour productivity, the growth rate of GFCF expenditure could accelerate to 5.4%.
The scenario projects that a more favourable development of the economies of the main trade partners will lead to a moderate recovery of exports. It is projected that in 2024 the annual change in the exports of goods and services (at constant prices) will reach 2.3 %. Anticipating faster growth of foreign demand in the later years of the medium term, it is likely that in 2025-2027 the annual growth of this indicator could reach 4.2 %.
The scenario is set against the backdrop of exceptionally high external environmental instability and economic uncertainty, ongoing active military actions in Ukraine and geopolitical tensions and changes in monetary policy.
russia's war against Ukraine, geopolitical tensions in the Middle East, excessive tightening of monetary policy, faster growth of energy and other raw materials, food prices, less favourable development of the euro area and the global economy, fluctuations in global financial markets, population ageing and lack of workers are some of the negative risk factors, which may lead to changes in the estimates of key indicators in this scenario.
There are also positive risks, such as stronger domestic and foreign demand, increased investment in defence, faster implementation of the European Green Deal and other EU-funded projects, more favourable demographic trends and immigration of skilled workers, faster transition to green energy.
The description of Lithuania’s Economic Development Scenario (June 2024) is available here.
Full Economic Development Scenario for 2024–2027 is available here.
Presentation is available here.
Additional information:
The Economic Development Scenario was prepared after evaluating the data of the National Accounts for the first quarter of 2024 and other statistical data published by 31 May 2024, taking into account the measures provided for in the Republic of Lithuania Law on the Approval of the Financial Indicators of the 2024 State Budget and Municipal Budgets, changes in the external environment that took place after the publication of the scenario by the Ministry of Finance in March 2024. The assumptions of the scenario regarding the external environment and energy (oil and natural gas) prices are in line with the economic forecast published by the European Commission in May this year.
Last updated: 01-07-2024
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