Lithuanian economy will grow more slowly, inflation will go down but structural unemployment will force employers to raise wages of skilled labour next year, say analysts of DNB Bank, a member of the largest Norwegian financial services group.
They project the growth of gross domestic product (GDP) to be 2.0 per cent in Lithuania, 2.8 per cent in Latvia and 2.5 per cent in Estonia in 2013. Economic growth in Lithuania and our other Baltic neighbours will slow down due to decelerating exports which will not be offset by domestic consumption. The real growth of Lithuanian exports is expected to be around 4 per cent (7 per cent in 2012).
If Lithuania managed to make use of some LTL 400 million available for renovation of residential houses next year, this would add about 0.3 per cent to the projected Lithuanian GDP. This would also help to lower albeit temporarily the double-digit unemployment rate which should decline slightly next year from around 12 per cent at the end of this year to 11 per cent at the end of 2013.Unemployment indicators will depend on newly created jobs and emigration of jobless people.
“It is obvious that structural unemployment is the main cause of tension in the labour market in Lithuania and Latvia. Many jobseekers do not have specific knowledge required by employers that create new jobs and current level of wages of blue-collar workforce discourages people from seeking retraining. In a couple of years we will have a situation in Lithuania when the unemployment level will stop falling at around 10 per cent,” says Rokas Bancevičius, Senior Analyst at DNB Bank, presenting the latest publication of the economic research team which outlines the economic outlook for Lithuania, Latvia and Estonia.
DNB analysts note that the growth of labour productivity in Lithuania has outpaced the growth of nominal wages by 20 per cent in the last three years. This means that the internal devaluation approach chosen in 2009 helped increase the real competitiveness of products and services originating in Lithuania by a fifth. Relatively low wages in both Lithuania and Latvia became a very solid competitive argument on export markets and, at the same time, became one of the key drivers of economic growth.
“In Estonia, wages have grown strongly since the beginning of 2011. In September, the real average wage (adjusted for inflation) also increased in Latvia for the first time in more than three years. Lithuania will also feel the pressure to raise wages. Therefore, in addition to price competitiveness businesses will soon need to offer a higher value added on foreign markets, which will require more sizeable investments,” adds Bancevičius.
Inflation is expected to continue to slide downwards in all three Baltic states next year. In Lithuania, inflation will fall from 3.2 per cent this December to 2.7 per cent at the end of 2013 mostly because of lower prices of oil and other energy resources. The growth of prices of consumer goods and services in Latvia will be even weaker (2.5 per cent) as a result of government efforts in the neighbouring country to meet the Maastricht criteria before the adoption of the euro.
“We believe that Latvia will meet the Maastricht inflation criterion at the end of 2012 and in the first half of 2013. If the country manages that, Latvia may become a member of the euro area at the beginning of 2014,” says Bancevičius.
Making banking delightfully easy