Economic stagnation or deep crisis: economists have assessed possible scenarios for Lithuania
Rudzkis: a deep crisis or economic stagnation
Economist prof. Earlier this year, Rimantas Rudzkis predicted that the European Central Bank (ECB) may have to suspend its cheap monetary policy in recent years due to rapidly rising inflation, which, in his opinion, would lead to a stagnation of economic growth in the West.
“Most likely (ECB money – ELTA) will change, as the US Federal Reserve, the Federal Reserve, has already announced that it will end printing money in March, and financial markets forecast that it will be about three times normal in America this year.
The ECB is unlikely to fail to react in this situation. Even if you run out of money to print, you don’t need it anymore. But whether the norms of the problems would be raised is not yet known, ”the professor told Radio News, adding that the announcement of monetary policy changes by the ECB alone could slow economic growth.
“But it is enough to announce concrete plans for a normal increase – the stock market will start to fall. This will immediately affect everything. Feedback for consumption. There are many companies in the Western world that have spoiled at such cheap money. “As the policy tightens, a large number of economists fear that it will start, if not a deep crisis, at least an economic stagnation,” he said.
According to the economist, if the ECB decides to increase the important rates, the economic stagnation would start already this year or next year at the latest.
SEB bank’s economists predict that the ECB will not change rates this year, but will do so in the second half of next year. According to Swedbank’s economists, the ECB will raise the key interest rate no earlier than 2024. Luminor’s chief Sigismund Mauricas is considering this by the end of this year or 2023. at the beginning.
Still, economists agree that this would be just a symbolic rise. They see more threats to the Lithuanian economy due to geopolitical conflicts, the consequences of which are still difficult to assess.
Mačiulis: Geopolitical conflicts will have more serious consequences
Assessing a possible crisis scenario, Swedbank’s chief economist Nerijus Mačiulis says that a tight monetary policy will not cause a crisis in Lithuania, but he is looking at other threats to our economy.
“The price of money in Europe will not increase for the next two years. Even if it increases, there is talk of an increase from negative to zero problems. Even the sharp rise in expectations in the financial markets predicts that Euribor will rise to 0.1 percent. over the next few years.
Many individuals and companies borrow at zero interest rates, and the fact that Euribor will rise from -0.5 to 0 would not change anything, it is certainly not the ECB’s policy that may dampen Lithuania’s economic growth. The ECB will certainly not be so aggressive, as it would primarily ruin countries such as Italy and Greece, which have much higher debt and dependence on borrowed money and smaller problems.
The rise of US norms must dampen the growth of the US economy, but this will have an indirect effect on the Lithuanian economy. I do not think that this is the reason that could cause a crisis in Lithuania. “Geopolitical conflicts are a much more serious cause that could have negative consequences,” the economist commented.
The conflict with China could turn into an open fire at any time
First of all, he singles out the China-Lithuania conflict, but states that he cannot accurately calculate and assess its consequences for the Lithuanian economy and investments. According to him, this can not be done by other experts, they can rely only on guesswork.
As N. Mačiulis says, I really hope for the best and prepare for the worst. According to the economist, the scenarios can be very diverse, including economic stagnation.
“It all depends on how the Chinese Communist Party has continued to look at this conflict, what kind of pressure it will put on Lithuanian companies importing and exporting to China, what will be the relations with international organizations and companies that buy intermediate components in Lithuania.
There are so many uncertainties, we’ve said in various ways here that we’re counting on this conflict, and modeling, and but we’re sure we’ve enjoyed it so far the most, and prepare for the worst. The scenarios can be very wide: from a complete halt in economic growth to a growth rate that last year is as high as 5%, due to a number of growing drivers: EU support, fast-growing credit, positive expectations, really good good competitiveness.
On the other hand, the uncertainty is related to the conflict between Russia and the EU, but especially the conflict between Lithuania and China. It will be a slow-growing, smoke-creating problem that will already stifle economic growth, but could turn into an open and much more damaging fire at any time.
So far, we have refrained from predicting and are not saying we will see the worst-case scenario. We have only slightly reduced this year’s GDP growth forecasts for Lithuania to 3.2 percent. This will be the slowest growth among the Baltic States, and Lithuania is more affected by this conflict than its neighbors. The decisive factor will be the further political relations between Lithuania and China and the response of the Western states to them, “it was presented Swedbank N. Mačiulis spoke at the press conference.
Mauritius: The crisis scenario is realistic enough
Sigismund Mauricas, Chief Economist of Luminor, considers the crisis scenario in Lithuania to be quite real. Already, according to him, we are seeing one of the forms of crisis – stagflation. According to the economist, even less than 3% is possible this year. GDP growth.
“Lithuania is already experiencing stagflation – a crisis in which it is moving forward in terms of income, but it is being eaten by inflation. So the first half will be challenging. I wouldn’t be surprised if we didn’t have economic growth.
All hope is that in the second half of the year we will recover when inflation subsides, but then there will be a wave from the USA. There will be a greater impact on the rise in retail. Then we will not jump hard. This year will be modest, we are tentatively moving towards 3 percent. growth, perhaps even lower GDP growth. we will move slowly “, says the economist.
Speaking about the “emerging wave” from the United States, he notes that other changes will affect Europe as well. The economist predicts that the ECB may raise interest rates symbolically as early as the end of this year or early next.
“The US has been pushing for economic stimulus as inflation has risen sharply. People are not happy, housing prices have risen by 20%, forming a strong narrative that needs to stop printing money. It is therefore likely that the US will no longer be committed to stimulating the economy.
In Europe, too, I do not think there will be very good spending. As the US pushes the brakes, interest rises, Europe will sail downstream. <...> The ECB will raise interest rates symbolically, perhaps even later this year or early. I think the lifting will be technical to reduce the negativity of the impact. I would not anticipate a big rise because the countries of southern Europe are too drunk in school. I think the narrative continues to need to help the countries of southern Europe and will not want a belt-tightening scenario again. So, I think the interest rate will remain low enough, ”says Ž. Mauricas.
He points out that the energy crisis in Europe is raging further, which will take a lot of the cream off people’s incomes.
“Of course, some countries will cover the loss of income, but with borrowed funds, and will not fall from the sky all the time, then will have to introduce taxes or turn the belt. So I think this year will be quite challenging in economic terms. The first half of the year will be stagflation, “the economist concludes.
Lithuania is fighting on several fronts
Ž. According to Maurico, Lithuania is fighting on several fronts, so it does not contribute to economic growth either.
“The conflict with China is unlikely to have a significant impact on GDP, and may fall by one percentage point. But there is also a very different front – Belarus. We can climb on the same rake, there is a lot of danger here. There may be a similar scenario as with China: we can start a quota alone in terms of sanctions. Formal sanctions do not exist for most of the economic activities that Lithuania, but very determined to restrict, are at the forefront. In addition, there is also a pandemic front, it has not disappeared anywhere, ”says the economist.
Izgorodin warns: residents do not need to live too much
his economist Alexander Izgorodin Delphi said that Lithuanians are currently experiencing consumption euphoria, but warns that it would not always be worth too much, because economic growth is never eternal.
“It simply came to our notice then koviduis starting to travel more and more, spending on purchases that have not been acquired through cattle crisis for fear of everything. Everyone that the labor market is improving, wages are recovering, thinks that this situation will never end, people are confident and spend a lot, I think it is a fatal mistake of Lithuanian consumers, because economic growth is never eternal, someday another crisis will come.
I would like to leave the population with no confidence in my financial capacity and the situation, which is certainly not the case yet fighting “The crisis is over, anything can happen, so people have to spend it very responsibly,” he said.
Rudzkis: Tight monetary policy in Lithuania will affect the real estate market
“One of the reasons why the European and Lithuanian economies are doing so well is that money is very cheap at the moment. Businesses and residents can borrow. Also, the amount of money is high anyway. Governments have big money at their disposal, borrowing at zero interest rates. This allows for compensation, ”R. Rudzkis told Knowledge Radio.
The economist says the ECB’s monetary policy forecast will still change as it will be forced to respond to changes in US monetary policy as well. In his opinion, this will also slow down the economic growth previously caused by these measures.
In Lithuania, in his opinion, the changes in the ECB’s monetary policy would primarily affect the real estate market: “The situation in Lithuania will change immediately, at least in the real estate market. Builders will suspend their development plans, people will immediately reduce their appetite to buy housing. The very fact that a new cycle of scaling begins is an immediate change in expectations. ”
Delphi recalls that this year’s Lithuanian GDP growth forecast Swedbank Economists reduced it to 3.2 percent and SEB Bank to 3.5 percent. Last year, the Lithuanian economy grew by 4.9 percent.
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