2024-04-16 14:35:37
The Chairman of the Board of the Bank of Lithuania, Gediminas Šimkus, will participate in the spring meetings of the IMF this week, where he will focus mainly on the challenges to European competitiveness and the implementation of the IMF support program for Ukraine.
“Both the global and Lithuanian economies have quite successfully withstood the effects of the energy price shock caused by Russia. However, a critical long-term challenge is emerging: shrinking economic potential due to slow productivity growth, an aging population, and geopolitical fragmentation. Therefore, it is necessary to prepare solutions both at the national and European levels. It is important to improve the in-demand skills of employees, promote innovation and accelerate the green and digital transformation of the economy,” says G. Šimkus.
According to him, as the world splits into geopolitical blocs, Europe must continue to be united as a fist and deepen economic integration, a necessary breakthrough in the implementation of capital markets and banking union projects.
Today, the IMF published new forecasts for the world economy, including Lithuania. They are still favorable for our country: this year the country’s economic growth will recover, and next year it will strengthen even more, although a little less than forecasted in the fall. After 0.3 percent last year’s decline, this year Lithuania’s gross domestic product (GDP) will grow by 2.2 percent. (-0.5 percent p.), and next year – 2.5 percent. (-0.1 percent p.p.). Inflation in Lithuania is slowing much faster than the IMF predicted in the fall: this year the average annual inflation will be 1.5 percent. (-2.4 percent), next year – 2.3 percent. (-0.7 percent pp).
The global economy continues to show resilience, allaying fears of a deeper recession. However, the expected growth is relatively sluggish from a historical perspective. Global GDP will continue to grow at 3.2 percent this year and next, significantly slower than the 3.8 percent forecast. average 2000-2019 The global economic outlook is weakened by Russia’s war against Ukraine, the long-term effects of the COVID-19 pandemic, slow productivity growth and emerging geo-economic fragmentation.
The IMF predicts that global price growth, especially in developed countries, will continue to slow down. In them, inflation will slow down from 4.6 percent. (last year) up to 2.6 percent. (this year) and 2.0 percent. (next year). According to the IMF, although inflationary trends are favorable, the challenge is not over yet, so the task of monetary policy remains to successfully bring inflation under control: it is important that interest rates are cut neither too early nor too late.
The trend of slower economic growth is particularly pronounced in the euro zone: its economy grew by just 0.4% last year, it should grow by 0.8% this year, 1.5% next year, and 1.2% in the long term. Let’s compare: in the long term, the economic development of the USA is expected to be almost twice as fast. The sluggish development of the euro zone this year is due to the halted growth in Germany (this year’s forecast is 0.2%) as the industrial sector deals with the effects of energy price shocks. This effect is partially offset by the faster growth of southern European countries – Greece, Spain, Portugal – due to the recovering tourism sector and lower sensitivity to energy price shocks. in 2024 the average annual inflation in the euro zone should decrease to 2.4%, and next year – to 2.1%.
The U.S. economy is growing much faster than expected, thanks in part to strong fiscal stimulus. The US economy will continue to grow much faster than the euro zone: last year it grew by 2.5 percent, this year it is expected to grow by 2.7 percent. growth (+0.6 percent), and next year – 1.9 percent. (+0.2 percent pp). True, due to strong stimulus and a tight labor market, inflation in the US reached the target of 2 percent. level will return more slowly than previously predicted: this year inflation will be 2.9 percent, next year – 2.0 percent.
As the world economy stabilizes, the IMF emphasizes the need to return to the discipline of public finances, end crisis-period support measures and curb the growth of sovereign debt.
According to the IMF, the balance of risks slightly improved during the half year and became neutral. Main downside risks: further geo-economic fragmentation, prolonged inflation and new price shocks from Russia’s war in Ukraine or other geopolitical tensions, such as if the conflict in the Middle East spreads. One of the main possible upsides is faster-than-expected inflation, while another is greater public stimulus with elections taking place in much of the world this year. The IMF notes that this would have a short-term positive impact on global economic growth, but could increase inflation. And this would negatively affect economic growth in the longer term.
At this year’s spring meetings of the IMF, G. Šimkus will meet Bo Li, deputy managing director of the IMF, Kristalina Georgieva, to discuss current affairs and operational priorities of the cooperation between the Bank of Lithuania and the IMF. There will also be regular institutional events and meetings with colleagues from the Nordic and Baltic countries, the perspectives of the world economy will be examined and IMF policy discussed. In addition, G. Šimkus will participate in an event organized by the Bretton Woods Renewal Committee, where together with the Governor of the Central Bank of Portugal, Mario Centeno, and other participants, he will discuss solutions to overcome the challenges of European competitiveness.
During the bilateral meetings, G. Šimkus will pay a lot of attention to the IMF’s support to Ukraine, which is suffering from the war. The implementation of the IMF program approved a year ago and ways to solve possible challenges will be discussed with the Chairman of the Central Bank of Ukraine Andriy Pyshnyy, the Ukrainian representative of the IMF Vladyslav Rashkovan, representatives of the IMF mission to Ukraine, as well as at the highest level with Bo Li, the Deputy Managing Director of the IMF.
Last month, the IMF’s executive board approved the third review of the IMF’s program for Ukraine and disbursed the fourth tranche of the loan, totaling $15.6 billion. program worth US dollars, the IMF has already lent 5.4 billion to Ukraine. US dollars. Despite the difficult war situation, the Ukrainian authorities, with the help of the IMF, manage to ensure the macroeconomic stability of the country, and the determination and responsibility they show in implementing the IMF’s conditions is exemplary, so the program is implemented smoothly. Uncertainty about foreign financial support for Ukraine was reduced by the European Union’s agreement on 50 billion. EUR 4.5 billion of the support package. Part of the euro reached Ukraine in March of this year. It is especially important that international financial support reaches Ukraine on time and in the agreed amount.
2024-04-16 14:35:37