Bankruptcy of Lithuania: V. Janulevičius presented grim scenarios that could await Lithuanians this year: one bad, the other bearable

" On Wednesday, the representatives of the Bank of Lithuania presented updated forecasts for the growth of the Lithuanian economy. Compared to last year, when the country's economy shrank by 0.3 percent, they should be happy, because it is predicted that the economy will grow by 1.6 percent this year.

 

 

 

The representative of Luminor Bank gave even better news, stating that the country's economy will grow by even 2 percent this year. It is predicted that economic growth in 2025 will reach almost 3 percent.

 

 

 

Is everything really like that, or have all the economic problems already been solved and we just need to wait for the European Central Bank (ECB) to start reducing interest rates (which may have to wait until autumn, which is also not at all encouraging)? I think that even these optimistic predictions are way ahead of reality. And I see two scenarios, one bad and the other, let's say, tolerable. Let's assess the situation realistically.

 

 

 

First, this year's economic recovery will not particularly please Lithuanian industry representatives. There are several reasons for this. Let's start with the fact that in 2023, compared to 2022, the volume of manufacturing production in both the European Union and Lithuania decreased. It decreased by 1.4 percent in the entire European Union, while in Lithuania it decreased by 4.6 percent. German manufacturing, which is an important customer of our manufacturing, saw output fall by 0.6 percent. This is the fourth annual contraction in manufacturing output in the past five years.

 

 

 

The world's supply chains and international trade, which were supposed to recover after the pandemic, are today marred by geopolitical conflicts. Product deliveries are taking longer, companies are building larger inventories because they want to reduce the risks of running out of stock. Supply chains for strategic products are being 'nationalised' or 'regionalised'. This can lead to increasing production prices and decreasing resource utilization efficiency. The world international trade map is "regionalizing" as well. It is predicted that international trade will grow much more slowly in the coming years than in the past. If international trade grew by more than 3 percent in 2015-2019. annually, i.e. in 2020-2024, its growth barely exceeds 2 percent.

 

 

 

  Better knowledge is not expected after 2024. The export of Lithuanian goods in 2023 was 11 percent. lower than in 2022, the export of goods of Lithuanian origin decreased somewhat less, but also significantly -10.6 percent. Most of the goods produced in Lithuania are exported to European Union countries. About 60 percent go there of all exported goods, of which almost 70 percent are goods of Lithuanian origin. It is these our export markets that are experiencing difficulties. Last year, more than 25 percent exports to Latvia decreased, to Estonia - more than 15 percent, to Sweden - more than 13 percent, to Germany - more than 12 percent. Economic growth in these, perhaps our main international trade partners, will not please us this year either. It is predicted that the economy of the entire European Union will grow by only 0.9 percent this year. In addition to all external factors of the country, insufficient demand in export markets, the manufacturing industry and business in Lithuania also face internal challenges.

 

 

 

Although energy prices have decreased, they remain relatively high. Too high.

 

 

 

And there are still no practical solutions that would fundamentally change energy prices. Insufficient demand (especially in export markets), stagnant green transformation in times of high capital costs, stagnant de-bureaucratization and European business competitiveness (which simply needs to be reinvented, because I believe we are stuck in European competitiveness 2.0, when the US and China are rapidly moving towards competitiveness 5.0 stages) should be that "emergency" message (which the services like to send to every citizen's mobile phones as soon as the wind gets stronger) to each of us and especially to the policy-making and implementing institutions.

 

 

 

Yes, something is moving somewhere, but too slowly, and the good wishes and ambitions of politicians keep bumping into our own bureaucratic jungle. While we desperately debate whether we still need to support renewable energy, the clock on our competitiveness is ticking.

 

 

 

Well, we are back to high interest rates, which the ECB may not find the political will to remove for a long time. And the longer it is not found, the more we will have nothing to invest in more efficient technologies, sustainability and the same renewable energy. What has not been done that the RRF money still cannot reach us in any way? Long pause... That's why I think that this vicious cycle of a stagnant Europe - a blocked ECB - increasingly stagnant investments in Lithuania will not allow us to achieve the kind of results predicted by optimistic banking analysts.

 

 

 

My forecast is much more gloomy: I think that if the RRF funds do not reach the business in time, we will have only 0.8 percent. growth. Otherwise, if the wheel is unstuck, it  would move - I think the maximum we can expect is 1.5 percent growth. Thus, even the scenario of the Bank of Lithuania is only possible under one condition - improving access to capital. But while there is no light at the end of the tunnel on this matter, the representatives of the industrial sector will likely be happy only with blooming cherry blossoms this spring."