Swedbank economists forecast that US economic growth will remain stable and reach about 2 percent next year, while the eurozone’s economic growth will slightly accelerate to 1.3 percent.
“US economic growth is still supported by huge investments in data centers, and consumption growth has not yet exhausted. Despite heat waves, fires, and more expensive fuel, the EU economy has not faltered, and there is also some industrial recovery,” says Swedbank Chief Economist Nerijus Mačiulis.
Swedbank economists forecast that the European Central Bank (ECB), managing inflation expectations, will raise base interest rates once more in September, up to 2.5 percent. However, economists point out several risks that could cloud the still bright economic trends.
“Although oil and fuel prices have dropped to a tolerable level, the energy crisis is not yet over. Despite all efforts by the US administration to achieve a ceasefire, shipping through the Strait of Hormuz remains heavily restricted and dangerous, and oil prices have so far been lowered by rapidly depleting strategic reserves. Sustainable ceasefires and restoration of the status quo remain unlikely for now, and this autumn we may again see larger energy price jumps. Accelerating inflation would further increase interest rates and could dispel euphoria in stock markets as well as residents’ ability and willingness to increase consumption,” lists the risks Nerijus Mačiulis.
Economists also draw attention to the fact that global trade may be dampened not only by supply chain disruptions but also by higher tariffs and other trade barriers.
“The US administration’s enthusiasm for taxing imports does not fade, but for Europe, even more important may be the growing competition from China in advanced technology industries – from electric vehicles and batteries to medical equipment and chips. The EU faces a difficult choice – to passively watch as industrial companies lose in an unfair competitive fight or to impose import tariffs and quotas and engage in a trade conflict with China,” says N. Mačiulis.
Lithuania’s uniqueness is determined by more than just a consumption surge
This year, Lithuania’s economic growth remains one of the fastest in the EU. Swedbank forecasts that Lithuania’s GDP will grow by 3 percent this year, but next year, due to weakening consumption, economic growth will slow to 2.3 percent.
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“Lithuanians have already spent more than a billion euros withdrawn from second-pillar pension funds. Most savings were spent on long-term consumption goods – cars, building materials, furniture, electronics. However, in recent months, expenses for non-essential goods – travel, leisure, hotels – have grown significantly. Because of this, retail growth in the second quarter was the fastest in the EU, but this is a one-time surge that will not be easily repeated,” lists consumption factors N. Mačiulis.
However, economists also point out that Lithuania’s economy stands not only on consumption legs – industrial growth was also the fastest in the EU, and growth in service exports has not faded.
“This year, Lithuania’s leadership is also seen on less pleasant fronts – inflation will exceed 6 percent in the near future. Next year it will decrease due to slower minimum wage increases and expected energy price stabilization, but this year’s inexpensive food products may unpleasantly surprise,” forecasts N. Mačiulis.
Swedbank forecasts that the average salary in Lithuania will increase by 8.6 percent this year, and next year growth will slow to 7 percent. In addition, economists believe that net immigration will decrease next year, and employment has already peaked.
“In the past decade, rapid growth in government sector tax revenues was greatly contributed to by both employment and double-digit wage growth. Both of these sources are fading, and accordingly, the government sector’s appetite to increase spending will have to be adjusted. Higher taxes would reduce Lithuania’s competitiveness and ability to attract investments and talents, so the only sustainable path will be to seek where and how to optimize public sector spending and increase its efficiency. Thanks to new technologies, there is a lot of room for this,” says N. Mačiulis.
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