Opinion on the endorsement of the Economic development scenario

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 30 June.

The favourable performance of the global economic growth in Q1 2023 was driven by the continued resilience of the US labour market, the recovery of the Chinese economy, and the smaller-than-expected contraction of the euro area economy. This also contributed to the European Commission's projections for the world and the EU in May, which were more favourable than in February. Nevertheless, uncertainty about economic developments remains.

In Q1 2023, the Lithuanian economy experienced a stronger-than-expected contraction of 2.4%, driven by the negative performance of industry, trade, transport and real estate companies. The decline in the country‘s real GDP was driven by a fall in exports due to weakening external demand, a fall in household consumption expenditure affected by high inflation and the base effect. The unemployment rate rose to 7.7% in Q1 2023, but the job vacancy rate remained high.

"The second half of this year is expected to be more favourable for the country's economic development and a severe economic downturn will be avoided in 2023. After the unemployment rate rose due to lay-offs during the pandemic, employers found it difficult to find workers later on and some sectors are still experiencing shortages today. For this reason, we believe that employers will try to retain staff in anticipation of a short-term economic slowdown. Investment is also expected to keep the economy from falling sharply, and the efficient implementation of public sector projects could contribute to increasing the resilience of the economy by tackling the problems of energy dependence," said Jurga Rukšėnaitė, Head of the Budget Monitoring Department.

Lower-than-last-year prices for raw materials and energy resources will facilitate a slowdown in inflation and the development of the Lithuanian economy in the second half of 2023, but the remaining uncertainty about prices and external demand precludes strong GDP growth. The presented projections for the Lithuanian economy are influenced by the expected slowdown of the economies of the country's main export partners in 2023 and their recovery in 2024. The June economic scenario projects a 1.0% contraction in real GDP in 2023 and growth of 2.5% in 2024. The country's economy will be positively affected by investment and net exports.

According to the National Audit Office, implementing the function of the fiscal institution, rising investment and favourable migration trends are increasing potential GDP in the period 2023–2026. In the event of a slowdown of real GDP growth in 2023, the economy is projected to be below its potential level.