Swedbank: normal life will not return for some time

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In severely affected sectors such as tourism, air transport and events, the crisis will continue for a long time to come. In other service sectors, the most difficult stage could be behind us. Swedbank’s payment card data in recent weeks no longer point to a deeper decline in household spending, and judging by the easing of restrictions observed in Lithuania, customer activity is resuming. Unfortunately, normal life will not return to almost any industry in the near future. Due to the projected very slow and uneven recovery, many companies that have survived this wave of virus attacks with state support are likely to face insolvency later.

Businesses and citizens are likely to remain cautious for long. This will slow down the recovery of consumption and, even more, investment. The hope for investment is the continuation of existing projects in the private sector, and the activation of large projects on the state side. However, new private investment is likely to be weak, as uncertainty remains high, free funds in the crisis have to be spent to stay afloat, and many will have to repay their debts during the recovery phase. The combination of slow growth and a high debt burden is dampening not only current activity but also long-term economic growth by dampening investment.

Labor markets and inflation are mirrors of weak growth

The labor market is drawn to the worker in gloomy colors. Unemployment will continue to rise, peaking at 11% in the third quarter, then slowly declining. Overall, the unemployment rate will rise to 9.5% this year and fall to 8.5% in 2021. Entrepreneurship surveys show that labor shortages are no longer a major problem, which is positive news for entrepreneurs who have found new development opportunities in the crisis. The labor market is becoming more favorable for the employer, therefore we forecast that wage growth will stop this year, but next year wages will grow by 4.0%.

Weak demand, non-rising labor costs and low oil prices will keep inflation close to zero this year (0.1%), but will rise to only 1.6% next year.

We need to learn and work together quickly in times of crisis

The government has announced a number of support measures, which are to be welcomed, but their implementation has disappointed many, and the stimulus is unlikely to be sufficient. At present, it is important for the country to respond quickly to the recommendations of economic actors, to correct the existing shortcomings and to learn from mistakes, so that future support measures would be more successful.

It must also be remembered that we all play on the same team. The interests of entrepreneurs, citizens and the state are closely intertwined in the economy. By responsibly taking precautions to control the virus and cooperating for the benefit of economic development, we will certainly be able to achieve much better results for all economic actors.