GDP growth is accelerating, but how much more potential is there?
• Setback in investments – probably temporary
• Getting closer to bottlenecks in the labour market… but not there yet
• Households are doing better, but are we on the right track for it to last long enough?
Setback in investments – probably temporary
Annual GDP growth accelerated to 2.3% at the beginning of the year and was mainly driven by household consumption as real wage bill growth was the highest since 2007. Furthermore we have also seen a rather strong recovery of exports. Investments shrank mainly due to decrease in construction of buildings and strong investment contraction in the public sector. However, we expect that this was a temporary setback and investment growth will resume during the rest of the year due to good financial situation of companies and rising needs for investments.
Getting closer to bottleneck in the labour market…but not there yet
Companies are getting increasingly worried about the lack of labour. So far increasing activity and to some extent changes in age structure of the population were at least partly offsetting the negative demographic trends. However, we might be approaching the limit for further labour market participation growth.
Households are doing better, but are we on a right track for it to last long enough?
Even though employment decreased in construction sector as expected, employment increased in most of the service sectors and in manufacturing. The divergence in wage growth among different sectors decreased as well. Overall, more people this year will see their income rising. Nevertheless, the share of people earning low wages remains too high and too many of unemployed are not able to start working. As wage growth is now mainly driven by high structural unemployment rather than productivity growth, there is a limit to which wages can sustainably grow further. There have been some positive changes in the institutional and regulatory environment and the tax system. It is essential not to stop there as the cost of pursuing the wrong policies and postponing the right ones are rising.
For more information about this report, please contact Ms. Vaiva Šečkutė, +370 610 08360, Vaiva.Seckute@swedbank.lt
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