2023-03-28
As Lithuania’s economic growth slows, it should be supported by investment rather than compensation
The National Audit Office of Lithuania, implementing the function of the fiscal institution, assessed and endorsed the Economic Development Scenario for 2023–2026 published by the Ministry of Finance on 20 March.
Better-than-expected autumn figures for domestic consumption and international trade in 2022 and China's reopening after measures taken during the COVID-19 pandemic contribute to a more favourable outlook for global economic development in 2023. In addition, the energy crisis, considered as one of the biggest challenges, affected the EU and therefore Lithuania’s economy less than expected in the autumn.
"With geopolitical uncertainties and the economy below its potential, a general government deficit is possible, but with interest rates rising, the management of general government finances requires greater prudence. The focus should be on resilience-enhancing investments rather than on compensation for the whole population. It is worth noting that compared to other Baltic countries Lithuania has recently allocated the least funds to investments that would contribute to economic growth potential" said Jurga Rukšėnaitė, Head of the Budget Monitoring Department.
Lithuania’s growing economy in 2022 was caught up by a decrease in purchasing power, which contributed to a worse-than-expected Q4 2022 result, which fell by 0.4 % over the year. The change in real GDP was negatively affected by a decrease in net exports and a fall in household consumption expenditure. This change in consumption has been driven by the fact that inflation has outpaced rapid wage growth, which grew despite the war in Ukraine and the energy crisis.
Weaker-than-expected domestic and foreign demand and economic developments in Q4 2022 call for a more cautious outlook for Lithuania’s real GDP growth in 2023. Real GDP growth projected in the Economic Development Scenario will reach 0.5 % in 2023. Economic development is likely to be supported by investment and household consumption expenditure. Also, it is expected that net exports will contribute negatively to GDP growth this year. The decline in the rate of inflation will be caused by the improving situation in energy markets, the high comparative base, the slowing economic development and decreasing tensions in supply chains.