Flash comment: Lithuania - August 25, 2015
Wage growth accelerated to 4.6% in Q2, more to come

In the second quarter of this year annual nominal growth of gross wages accelerated to 4.6%. Meanwhile, real net wages increased by 5.1% as prices decreased this year. Collapsing exports to CIS, somewhat unexpectedly, did not have, any significant impact on the Lithuanian labour market. Job creation was very rapid in the first half of this year and the number of registered vacancies in the labour exchange was at the highest level since the beginning of 2008.

Wage growth diverged in private and public sectors – private companies increased wages by 5.4% compared with the same time a year ago, whereas wages in public sector have increased by 3.5%. Wage growth was still very divergent across different economic sectors. The most rapid growth was recorded in some services sectors, such as arts and entertainment (9.0%) and information and communication (8.6%), where the vacancy rate is the highest. Wages barely grew in some public sectors, for example in public administration and education.

Outlook

As the shortage of qualified labour force is likely to increase (already obvious in some sectors), wage growth will accelerate. Moreover, in 2016 public sector wages are likely to be raised as Parliament election will take place. Therefore we expect gross wage to increase by 6.5% next year and to rise by another 6% in 2017 due to even higher competition for the qualified labour force. The purchasing power of households will increase the most in 2015 as prices will be 0.8% lower than a year ago.



Productivity growth has been lagging behind wage growth for more than two years now and this will continue this year and in 2016. This will result in higher unit labour costs and might threaten the competitiveness of Lithuanian exporters unless they invest in efficiency. Fortunately, investment in fixed tangible assets seem to be rebounding – they increased by 9.2% in the first half of this year compared with the same period a year ago, while investment in machinery equipment and transport have increased by 10%. However, gross fixed capital formation as a share of GDP in Lithuania remains significantly lower than in other two Baltic states and a number of other EU countries. More progress in this area is necessary.




For more information about this report, please contact Ms. Vaiva Šečkutė, +370 5 258 2156, Vaiva.Seckute@swedbank.lt

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