Flash comment: Lithuania - November 13, 2015
Unemployment dropped to 8.3% in Q3 due to shrinking labour force
Even though employment growth stalled, as expected, unemployment dropped to 8.3% in the third quarter this year – 1.1 percentage point (pp) lower than a in the second quarter and 0.8 pp lower than a year ago. Youth unemployment declined to 15.3% (1.4 pp lower than in the previous quarter and 1.1 pp lower than a year ago), while long-term unemployment dropped to 3.7% (0.6% and 0.6% lower, respectively).



Despite still weak exports, job creation most likely did not stall, the number of registered vacancies at the labour exchange in the third quarter was 16.3% higher than at the same period a year ago. However, employment decreased by 0.1% in a year most likely because employers found it increasingly difficult to find the right candidates for the vacancies. Number of registered unemployed per one registered vacancy dropped almost to the pre-crisis level this year. Decline in unemployment therefore was supported by shrinking labour force, which declined by 1% in a year. On a positive side, activity rate (for 15-64 year-olds) increased to new record highs and was at 74.3% in third quarter this year.



Outlook

We expect unemployment rate to continue decreasing throughout the coming years, but contrary to the past few years the main reason behind it will be decreasing labour force rather than employment growth. Decreasing labour force and high structural unemployment will limit employment growth in 2016 and in 2017 it will most likely even decrease, however, unemployment will shrink from 9.3% this year to 8.1% next and 7.5% in 2017. Shrinking labour force and rising shortage of qualified workers will create wage pressures and pose challenges to the competitiveness of Lithuanian economy as wage growth will most likely outpace productivity. Therefore, foreign and local investment growth as well as implementation of structural reforms in the areas of labour market, immigration policy, education and taxation are of immense importance now. Otherwise, competitiveness will erode and potential growth will be disappointing in the coming years.



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

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