Page 13 - Central & Southeast Outlook 2020

“Household spending will remain relatively modest despite strong real wage growth and a tight labour market. We estimate that consumption will rise by 2.8% [in 2019] and 2.5% [in 2020].”
“Poorer prospects will slow down capital spending activity, which is partly explained by increased uncertainty and an earlier peak in EU funding inflows. Over next two years, fixed investments will increase by 3%-4% annually. Global weakness has hurt exports, which fell by 2.5 per cent during the second quarter. Despite a weaker outlook, Latvia will avoid recession,” SEB wrote.
Annual average inflation is projected at 2.5% in 2020, a reduction of 0.3pp versus 2019, although still an upward revision versus earlier forecasts, according to the government’s budgetary plan. That is because of the inflationary effect of higher electricity and natural gas prices. SEB predicts CPI growth of 2.2%, a drop of 0.6pp versus 2019.
Despite the weaker outlook, the consensus is that the labour market will remain tight in the second quarter with high vacancy rates underscoring the mismatch between supply and demand. This applies especially to differences in skills and heavy demand for low-paid workers, SEB notes.
“The vacancy rate will therefore remain high even though unemployment will soon reach around 6 per cent. However, in the first half of 2019, pay growth remained high due to inertia in wage setting. Developments in the
labour market are slowing pay hikes, which will fall from 7.3 per
cent to 4.5 percent in 2021. A tight labor market, demographics and
strong expectations from the public sector will maintain pressure,” SEB wrote.
Latvia’s unemployment is expected to fall to 6.6% in 2020 from 7%, according to the government. SEB predicts a fall of 0.3pp to 6.2% while the European Commission forecasts a drop of 0.2pp to 6.4%.
Forecasting 2020 could prove tricky in an uncertain environment, the European Commission warns. “The risks to the forecast are tilted to the downside as the slowdown in investment and exports may spill over to the labour market and therefore negatively affect private consumption. Moreover, the uncertainty related to the external environment could also impact export growth more sharply than currently forecast,” the EU executive said in its latest forecast, published in November.
1.5 ​Macro - Lithuania
13​ CESE Outlook 2020​ ​ ​www.intellinews.com
Lithuania enjoyed robust growth in 2019 but this is forecast to decline in 2020 mainly due to external factors.