Lithuanian Business Community's Dreams for the New Year

 

"The coming year 2025 will be a very hot year again, although somewhat cooler than the previous years 2023 and 2024. Here is the climate forecast. However, we would also like the "temperatures" of political, geopolitical, and international trade disagreements to start cooling down in the world and in Lithuania. However, it seems that tensions will heat up more than one geopolitical and economic area next year.

 

CUSTOMS "WAR". While the US is preparing for D. Trump's inauguration in a couple of weeks, international trading countries are already implementing trade strategies "against" the impact of import tariffs. Chinese companies are paying more attention to diversifying export markets and are even talking louder about reviving and growing their domestic market consumption. Other countries are exporting record quantities of their products to the US and storing them, assessing the possibilities of optimizing their supply chain costs if their product prices rise due to possible US import tariffs would increase. By the way, this could become an opportunity for our industrial producers.

 

It is estimated that if the US decided to apply 10 percent import duties on all goods from the European Union (EU), its economy would be 0.3 percent smaller by 2026. What can the EU offer the US in exchange for the non-application of import duties? About 150-200 billion dollars in purchases of US goods, i.e., the volume of the current negative trade balance between the US and the EU. We may also be asked to import more oil and LNG from the US. So, there will be less price competition and more geopolitics in international trade. And where else is the application of retaliatory trade restrictive measures by other countries possible. We are talking less about them for now, but their probability is not so small.

 

TENSION OVER NATO FINANCING. D. Trump, who has not yet become president, is already mentioning the contribution of each NATO member country to NATO financing, aiming for 5 percent of GDP. Otherwise, he said he intends to consider the US withdrawal from NATO. It is necessary to note that currently the US itself allocates about 3.5 percent of GDP to defense financing and, if nothing has changed, then in the country's projected budget for the coming years, we must also see a decrease in this part (based on budget plans when J. Biden was still president and budget plans drawn up by the US Department of Defense, in 2025 defense spending will only amount to about 3 percent of GDP and this part will decrease by 2029).

 

Without going into considerations of whether the arrow of the US strategic defense compass is now pointing only towards China, which is becoming a much more powerful geopolitical competitor than Russia, it is obvious that European countries themselves must allocate more to their defense. Therefore, discussions about greater European and EU defense financing will be actively held. In 2024, 23 NATO member countries allocated 2 percent or more of their GDP to defense. In 2024, NATO European countries and Canada together allocated about 2.02 percent of their total GDP to defense. In comparable prices, they (NATO, European countries and Canada) allocated 430 billion dollars to defense in 2024, while the USA – 755 billion dollars. i.e. almost 2 times more. What can we expect? Intensive discussions both within the country on increasing defense funding and discussions at the EU level on the possibilities of increasing common defense funding.

 

EXISTENTIAL COMPETITION FOR SUSTAINABLE ECONOMIC GROWTH. Along with geopolitical wars in the world, a “cold” economic and technological war has also begun. Currently, all the major geopolitical powers of the world are investing in the economic independence of their countries: the USA, the EU, China. The fight is over everything: rarer and not so rare natural resources, strategic (renewable energy, semiconductors, artificial intelligence, etc.) industrial sectors and the technologies used in them, geopolitically neutral supply chains, foreign investment, investment environment, talent, investment in innovation, etc.

 

And here the EU seems to be losing in all competitions so far.

 

It imports more than half of all critical natural resources from China, is dependent on imported energy resources (oil, gas), has essentially lost the renewable energy industry, the development of semiconductor production capacities is stalling, foreign direct investment and even domestic investment are increasingly directed to other regions of the world (often to the USA), it is slow to generate investments in scientific research, experimental development and innovation (in sectors other than the automotive industry), and if it does generate them, it is often unable to effectively commercialize innovations and increase production volumes.

 

All these challenges require funding, but economic growth forecasts for the coming years do not offer much hope and room for manoeuvre. The EU economy is set to grow by just 1.5% next year, compared with 2.2% in the US and 4.5% in China. Furthermore, the EU is heavily dependent on international trade (in goods and services), which accounts for around 50% of its GDP, while China's – about 20 percent, in the USA – only about 10 percent GDP. Therefore, the news about possible US import duties and the slowdown in international trade growth and its growing non-tariff restrictions next year will affect the EU the most.

 

THE EU IS FIGHTING WITH ITSELF. The EU’s internal struggle is manifested in an attempt to curb its usual bureaucratic way of working and fragmentation in almost all strategic areas from the IT sector to the capital market. This year, a new EU commission began work, which for now can be called a “hopeful” commission. I believe that a large part of the EU’s near-term economic and geopolitical success depends on its own ability to implement a real single market in all areas. It is needed in the areas of innovation, the defense industry, IT, energy, capital markets and perhaps even immigration and talent attraction and recognition of competencies. It would be high time to understand that the EU is not a bunch of kids from the same yard, but a TOP league team. Therefore, both the financing and the formation and preparation of such a team must meet the highest standards. However, while the EU allocates only 1 percent of its total GDP (since 1980) to finance its own team... it is difficult to break into an international tournament when one lives only for the affairs of the national league.

 

FIGHT AGAINST EXCESSIVE BUREAUCRACY. The EU's commitment to reduce the burden on business by 30 percent was announced more than a year ago. No one in Lithuania has made such high-profile commitments, but with the new Government, hope has been revived that these matters will be looked at (at least this is what the representatives of the newly formed Government say) seriously and a rational audit of the administrative burden on business (and any other sector) will begin next year. Then, the aim should be to significantly reduce all excessive regulatory measures. With tensions and challenges already growing in the country due to an aging population, geopolitical security, etc., it is necessary to fundamentally reconsider the model of the entire public sector and its financing. In Lithuania, we redistribute about 36-37 percent of GDP, but greater redistribution through the budget is not necessarily the right answer. It would be worth examining the models of Switzerland (which redistributes about 32 percent of GDP), Ireland (about 21-22 percent of GDP), and the USA (34-36 percent of GDP). Currently, it is not uncommon for a state that redistributes the most through the budget to solve problems of large debts, and part of the solution to these problems is sought precisely in reducing budget expenditures.

 

HEATING SITUATION IN THE LITHUANIAN LABOR MARKET DUE TO EMPLOYEES. It is predicted that the Lithuanian economy will grow by about 3 percent next year. This is a really good and almost exceptional result both in the Baltic region and in the entire EU. What will be the engines of economic growth? Recovering domestic consumption, because (wage growth, reaching over 8 percent, even if slowed down, will be much faster than in most EU countries) and investments supported by public funds (RRF). The Lithuanian labor market has been experiencing a chronic shortage of workers for several years, so faster economic growth and recovery, greater demand for construction services (non-RRF money needs to be absorbed by the end of 2026), the desire to accelerate the development of defense industry capabilities in a short time may lead to an additional increase in the demand for workers in the medium term and lead to a greater than usual shortage in the market. I would like to see us agree next year that securing workers is not only a business matter and problem, but a problem for the entire state, which needs to be solved strategically, including solutions for responsible, safe strategic immigration.

 

Finally, I would like to think that the coming year 2025 will be the final stage of a certain psychological crisis for the EU and Lithuania. The crisis that we have been experiencing for the past three years, when we painfully realized that we have never been safe, that we are not sufficiently equipped with defense measures, that Europe is losing its economic and technological advantage in the world. I hope that we will enter the phase of active operation and that the probability of its success will be really high - at least as high as the probability that the Atlantic current will change direction from 2025, i.e. 95 percent."

 

Are you kidding?

 

How do you, while spending money on unnecessary war toys and very expensive overseas energy, find the funds to develop a modern economy, to catch up with China and other countries of the South, which have come a long way?

 

Our main businesses in Lithuania are of the "buy-sell" type. You have cut them off from the rest of the world's trade chains due to politics. What are you doing about this?

 

What will you do next year with the ditches full of corpses (including female corpses) that the Supreme Commander of the Lithuanian Armed Forces demands?

 

The average Lithuanian pension after the increase is about 400 euros. How can you live on such money? What kind of idiots will stay or come to work for you if this is the only way you are rewarded for your life's work?

 

Does safe immigration exist? In what country?