The Bank of Lithuania reports the IMF prediction of slower global economic growth and increasingly prolonged high inflation for this year. According to the IMF, central banks should continue tightening monetary policy, while fiscal policy should focus on reducing the fiscal deficit and debt level in order to contribute to inflation reduction. Are competitiveness and growth stability at risk?

Controlling high inflation remains the main task for Lithuania and many other countries to ensure sustainable economic growth in the future. While central banks inhibit inflation through monetary policy measures, the governments could contribute to this goal by reducing budget deficits, and closely monitoring the effect of such a stance on financial stability and the real economy.

The IMF predicts that global economic growth will slow down from 3.4% last year to 2.8% this year, and in 2024 growth will accelerate to 3.0%. The euro area economy should grow by 0.8% this year (from 3.5%) and by 1.4% next year. Inflation should decrease more slowly than previously expected, partly due to tight labor markets and a slow post-pandemic recovery of labor supply. Global inflation should slow down from 8.7% last year to 7.0% this year and 4.9% next year. Inflation in the euro area should decrease from 8.4% in 2022 to 5.3% in 2023 and 2.9% in 2024.

The IMF worsened the forecast for the development of the Lithuanian economy for 2023 but improved it for 2024. A slight contraction of –0.3% is predicted for this year, driven by unfavorable trends in the first half of the year, as well as a return to 2.7% GDP growth next year. The IMF predicts that inflation in Lithuania will decrease more slowly than forecasted last autumn, and this year it should slow down to 10.5% and down to 5.8% in 2024.

The Bank of Lithuania’s balance of payments for February 2023 shows that:

• the surplus on the current account balance (CAB) increased significantly in February compared to January, from €79.9 million to €227.8 million. The increased surplus was mainly due to a narrowing (by 21.9%) of the foreign trade deficit, from €414.4 million to €323.8 million;
• the secondary income balance remained in surplus, amounting to €6.9 million;
• the negative net flow of financial account investment (€1.1 million) resulted from the negative net direct other investment flow.

The IMF emphasizes the increased risks to global financial stability: growing interest rates brought about the collapse of two US banks based on unsustainable financing models, and the shock also spread to the European banking sector, resulting in the fall of stock indices of European banks.