Organization for Economic Co-operation and Development presented its members’ economic review of December. Global economic growth until the end of 2021 will reach 5,6 percent, 2022 will slow down to 4,5 percent, in 2023 – until 3,2 percent because the support of the government will be diminished. According to the OECD, the global COVID-19 pandemic and new variants of virus enhances economic recovery delay and leads to supply shortcomings which in turn leads to inflation.
OECD forecasts that inflation will increase as long as supply constraints remain. GDP and employment will continue to grow, and inflationary pressures may persist. Vaccination and rapid distribution of vaccines worldwide, including revaccinations remain a key policy priority. The document emphasizes the importance of using all policy instruments that can further promote the world’s economy resistance and restoration of its dynamism.
“Omicron“ and other variants of COVID-19 enlarge the delay of economic recovery and affect supply shortages and this, in turn, leads to inflation. Therefore, according to the Lithuanian Confederation of Industrialists, persisting uncertainties regarding new virus strains management, completely unregulated supply disturbances, and rising prices of raw materials and components cannot lead to an expectation of fast economy growth in the upcoming year.
According to OECD Lithuanian economy recovered rapidly after the pandemic shock – 2021 forecasted GDP growth is projected significantly to exceed 5 percent and grow by 3,7 on average in 2022 and 2023. Unemployment is forecasted to gradually decline to pre-crisis levels. However, the fluctuations in the pandemic are obscuring the perspectives of recovery. Higher prices of oil will have an impact on inflation and enlarge pressure on prices.
Increased confidence has led to business investment supported by public investment and household expenditure. Private consumption was also supported by increased savings, accumulated during the lockdown, and large growth of salaries. The review states that fiscal policy continues economic recovery but it is much more targeted. It is appropriate to ensure the efficiency of aid and assist in restoring fiscal reserves. Further increases in social benefits are necessary to protect the most vulnerable groups. Strengthening of digital skills through a more responsive education system and effective curricula is a key factor in achieving productive growth during the period of recovery. Regional gaps in digital infrastructure need to be addressed.
According to LPK, the main problem that in the long-term will definitely have a really negative effect on the growth of our economy remains the shortage of employees and, as a result, rapidly rising wages. 28 percent of industrial enterprises indicate that the scarcity of employees is the main factor preventing companies from increasing their production volumes – such a high rate has not yet existed in the history of Lithuania. Labor productivity has continued to grow much slower than wages, therefore in long-term Lithuania’s competitiveness will suffer.
Lithuania is encountering challenges while shaping a unified and clear migration policy that would deal with both the shortage of employees and problems related to the demographic situation in Lithuania. There are labor shortages in various sectors, in different positions. The market lacks not only highly qualified workers but also employees with vocational education which for this day are difficult to bring in from abroad and recruit. The pandemic has exacerbated the situation. The shortage of unskilled employees by significant part currently is compensated by posting them from neighboring countries and such public policy results in the loss of potential additional revenue to the state budget.
In the view of LPK, both business and government are necessary to take into account OECD economists’ warnings about COVID-19 virus strain “Omicron“ very seriously because it could trigger factors that would slow down the economy’s growth and also would encourage inflation, slowing down global economic recovery after the crisis.