The Economic Development Scenario has been endorsed, however, the risks due to the geopolitical situation and energy prices are not decreasing
The National Audit Office of Lithuania, implementing the functions of the fiscal institution, assessed and endorsed the Economic Development Scenario for 2022–2025, published by the Ministry of Finance on 21 December.
In 2022, the global economy was more resilient than expected, but the risk of recession has shifted to 2023. Continued geopolitical tensions and the risk of prolonged high inflation, which is expected to lead to further interest rate hikes, are leading international institutions to revise downwards the growth outlook for the world’s major economies, including the ones in the euro area, for next year. This will affect the economic activity and price development in Lithuania.
“The unexpectedly strong performance of international trade in Q3 this year contributed to higher real GDP growth in 2022. Despite the downward revision of the GDP growth projection for 2023, the level of this indicator is expected to be higher than forecasted in the autumn. As a result, the budget’s revenue collection could be better than we expected in the October assessment of the 2023 draft budget. At the moment, the outlook is subject to extreme uncertainty, it is therefore possible that the country’s economy and public finances could be worse than expected”, says Principal Economist of the Budget Monitoring Department Jaroslav Mečkovski.
In the Economic Development Scenario a real GDP growth rate is projected to reach 0.7% next year. The level of global economic activity is particularly important for the highly open Lithuanian economy. Investment and household consumption will support Lithuania’s GDP growth in the face of a slowdown in the main export partner economies. In 2023, inflation is projected to moderate, however, the price growth will remain significant. The 2023 draft budget includes measures to increase income of population and mitigate the impact of rising energy prices, while strong wage growth will have a positive impact on households’ disposable income level and real household consumption.
Increased immigration, mainly due to the arrival of Ukrainians, and an increase in the activity rate of the working-age population are contributing to the acceleration of potential GDP growth projected by the National Audit Office. The slowdown in real GDP growth in 2023 is projected to keep the economy below its potential level.