2022-07-11
In order to tackle inflation, excess consumption encouraging measures should be avoided
The National Audit Office of Lithuania, implementing the functions of the fiscal institution, assessed the Economic Development Scenario for 2022–2025, published by the Ministry of Finance on 30 June 2022.
The growth of economic development in Lithuania was rapid in Q1 of 2022, but it is projected that the second half of the year will be less favourable for the development of the country’s economy. The Ministry of Finance projects that Lithuania’s real GDP will grow by 1.6% this year. Lithuania’s international trade is expected to be affected the most, nonetheless, household consumption expenditure and investment will support the growth of the country’s economy. At the end of Q1 of 2022, changes in the structure of the Lithuanian export of goods are observed. Compared to February, the export of goods to Russia and Belarus decreased by more than one-third in March, while the increase in export to the countries of the European Union (EU) is evident. It is projected that the country’s real GDP will increase up to 2.1% in 2023.
“With high projected inflation, pressure to adopt additional measures, such as tax cuts or various compensations, applied to all residents, is intensifying. International organisations recommend targeted support to the most vulnerable groups and warn that the stimulus of domestic demand complicates attempts of the European Central Bank to tackle inflation. Taking into account the negative balance of risks, decisions must be made very carefully, as the measures that increase the deficit of general government may lead to growth of public debt,” says Jaroslav Mečkovski, Principal Economist of the Budget Policy Monitoring Department.
As the geopolitical situation remains difficult, Lithuanian and global economic perspectives are obscure. The uncertainty related to Russia’s war in Ukraine remains. The imposition of new sanctions by the EU against Russia and Belarus and countermeasures that may be potentially used by these countries might lead to rapid growth in the prices of energy resources and raw materials. The prolonged risk of supply chain disruption persists, driven by China’s measures to manage the COVID-19 pandemic. This affects the industry of Germany which is the largest trading partner of Lithuania, because it is highly dependent on the components produced in China. The uncertainty of the economic situation, a rise in prices and interest rates are reflected in the worsening expectations of the business and consumer survery results of the eurozone. Besides that, challenges related to the further management of the pandemic remain. These risks may pose challenges to the economic development of both Lithuania and the country's main trade partners. According to the National Audit Office of Lithuania, the economy of Lithuania will be close to its potential in 2022.
The National Audit Office of Lithuania, implementing the functions of the fiscal institution, endorses the Economic Development Scenario for 2022–2025, as it is suitable for the preparation of the budgets attributable to the general government.