“Unprecedented shock”: why Lithuania may face the biggest economic downturn in 24 years

Business and consumer sentiment in the eurozone worsened as much as possible over the past seven years. According to the European Commission, in March, the corresponding index dropped to 94.5 points. The value has become the lowest since August 2013.

Experts explain the observed dynamics by RT experts as the negative impact of coronavirus on the European economy. According to official data from the World Health Organization (WHO), the total number of people infected in the world exceeds 638 thousand, and more than 30 thousand people have died.

The spread of the disease and the quarantine measures introduced by states provoked a massive reduction in the volume of industrial production, trade and passenger traffic in the world. Against this background, experts at the Institute of International Finance (IIF) forecast a drop in Eurozone GDP in 2020 by 4.7% immediately.

As expected, one of the most powerful economic collapses among the countries of the region can occur in Lithuania. According to estimates by the country's central bank, a prolonged closure of borders will cause a reduction in trade with neighboring countries and runs the risk of dropping GDP by 11.4%.

Moreover, in the case of prolonged quarantine, the volume of exports may fall as much as possible from 2009, and at the same time, the country will face a sharp weakening of domestic demand. As a result, a long recession may await the country's economy, and the country's GDP risks falling by 20.8% in 2020.

As the head of the Lithuanian central bank Vitas Vasiliauskas emphasized, at present the economy is already “experiencing an unprecedented shock”. According to the regulator, first of all, the coronavirus pandemic hit the country's business and forced the republic’s leadership to increase budget expenditures to help companies. This approach caused a panic of investors and led to a decline in business activity.

“In March, the index of business activity in the entire eurozone reached its lowest level for the entire observation period - since 1998 - which indicates a significant decline in economic activity. By now it is already clear that the Lithuanian economy will not remain unscathed. However, the duration and scale of the economic consequences will depend on how quickly the spread of the virus is curbed and what measures are taken to combat it, ”said representatives of the Bank of Lithuania.

According to RT analysts surveyed, the Lithuanian economy is largely dependent on the export of services and the supply of goods to neighboring EU countries. According to analysts, in the current environment, the textile, food and furniture industries are experiencing the greatest losses.

“If quarantine drags on, these budget revenue items can also be paused. As a result, the number of layoffs and layoffs may increase. For these reasons, a 20–21.5% economic slowdown may be quite probable, ”said Vasily Kapustin, head of the BCS Broker stock market expert department, in a conversation with RT.

It is expected that the decline in Lithuania's GDP by more than 20% may become the largest in the last 24 years. According to the World Bank, since 1996, the indicator has not decreased by more than 1.1%. The only exception was 2009, when, against the backdrop of the global financial crisis, the country's economy dipped by 14.8%.

“Because of the coronavirus, the country's tourism industry, which accounts for the bulk of budget revenues, also incurs significant losses. It’s not just quarantine. While there is no vaccine for the virus, tourists will be afraid to travel to European countries, including Lithuania. The problem is complicated by the fact that the vacation season is ahead, and during this time festivals and events were planned that fed the treasury of many cities of the republic, ”said Artyom Deev, head of the AMarkets analytical department, in an interview with RT.

In addition to coronavirus, a certain pressure on the country's economy is exerted by the updated EU policy, experts say. Thus, according to the draft European Commission, in the new EU budget for the period from 2021 to 2027, financing of Lithuania can be cut by about 20-25%. This was in an interview with RT the president of the Russian Association of Baltic Studies Nikolai Mezhevich.

“Even before the outbreak of the virus, the European Commission was considering the option of reducing subsidies to the country due to withdrawal from the UK union, which made the third largest contribution to the EU budget after Germany and France. Now the situation is exacerbated by the ongoing economic downturn in Berlin and Paris. The likelihood that the EU will cut back its support for Lithuania is growing exponentially, ”the expert explained.

United front

According to experts, Lithuania may not be the only country threatened by the economic crisis. According to economists at Swedbank, the fall in GDP in Estonia in 2020 will amount to about 5%. Amid the spread of the epidemic, unemployment in the country may exceed 8%.

At the same time, the Bank of Latvia predicts a 6.5% drop in the country's GDP in 2020. Moreover, even before the outbreak of the virus, the regulator was counting on an expansion of the economy by 2.6% for the year.

As noted by Artyom Deev, all three states of the Baltic region are interconnected by single chains of trade and production supplies, as well as transport channels. According to the expert, the further spread of coronavirus can cause even more damage to the Baltic countries than the financial crisis of 2008.

“There will be no air and rail transportation, and hotels will be idle. Trade will also suffer, which could lead to a recession in industry. As a result, people will begin to lose their jobs and source of income, which will result in a serious decline in consumer demand. Even if the virus can be stopped before the end of spring, the consequences of the pandemic for Latvia, Lithuania and Estonia will stretch for at least five or eight years, ”the expert concluded.