The National Audit Office of Lithuania, implementing the functions of the budget policy monitoring institution, endorses the Economic Development Scenario for 2021–2024 prepared by the Ministry of Finance. The risk remains that the scenario may not materialise due to changes in internal and external conditions leading to a significant change in the economic situation.
The impact of COVID-19 on the Lithuanian economy in 2020 was ambiguous: on the one hand, the decline in gross domestic product was one of the lowest in the European Union, on the other hand, the change in the unemployment rate was one of the highest. Lithuania’s economy was among the EU countries, which was the least affected by COVID-19 in 2020: real GDP contracted by 0.8 % (EU average: 6.2 %). This was driven by increased demand for chemical industry production (diagnostic and laboratory reagents), high agricultural yields and increased exports of food, beverages and tobacco products. The unemployment rate in Lithuania was one of the highest in the EU and reached 8.5 % in 2020 (EU average: 7.1 %).
“The acceleration of the process of public vaccination is a factor stabilizing not only the health system, but the global and Lithuanian economies as well. Containment of the pandemic will allow the use of savings accumulated by the households and business during 2020 to stimulate consumption and, above all, private investment. Successful allocation of financial resources intended for economic transformation would also favour economic development in the medium term," says Jurga Rukšėnaitė, Advisor to the Budget Policy Monitoring Department.
There are also negative risks associated with the pace of vaccination. Economic recovery could take longer due to slower mass vaccination, new outbreaks of COVID-19 mutations and tighter measures to control it. Lithuania’s economy may also be adversely affected by risks related to the recovery of the global economy following the pandemic, foreign demand and the geopolitical situation.
In the Economic Development Scenario gross domestic product is expected to grow by 2.6 % in 2021, and 3.2 % in 2022–2023, which will be driven by recovering domestic consumption and investment. Also, while anticipating economic recovery of the Lithuania’s main trade partners, growth of the country’s real exports of goods and services is projected in 2021–2023. The average monthly gross earnings will grow faster than inflation. Furthermore, Lithuania’s deteriorating demographic situation will negatively affect the number of employed persons in the medium term.
The National Audit Office, implementing the functions of the fiscal institution, updated the heatmap of Lithuania’s economy. The forecast for the first quarter of 2021 presented therein shows that the temperature of Lithuania’s economy will be in line with the average level in 2020, but will remain lower than in 2017–2019.