2024-04-08 17:15:50
“At first glance, everything seems to be going well. In the Eurozone, price growth continues to slow down. Slowing down faster than expected. According to Eurostat’s preliminary data, the annual inflation in the euro zone already dropped to 2.4 percent in March, while in Lithuania it even dropped to 0.3 percent.
But the growth of service prices is still twice as high as the European Central Bank (ECB) wants. It has not changed since November last year and reaches 4 percent. It is the increase in wages and the increase in the prices of services that the ECB’s greatest attention is directed to,” the LPK president wrote on his Facebook account on Monday.
It is added that a large part of the cost structure of the service sector is made up of wage costs, which are growing much faster than the ECB would like. And in Lithuania, they grow more than twice as fast as compared to inflation-neutral wages. According to V. Janulevičius, all this will lead to the fact that it is really not worth expecting a reduction in interest rates this week, when the regular meeting of the ECB will take place.
“But the darkest clouds are concentrated in the United States of America (USA). There, one of the representatives of the Federal Reserve Bank (FED) stated that interest rates should not be cut this year in the US at all, because the economy remains strong, the labor market is also strong, and unemployment is at a record low (so far it does not even reach a percentage, but it is growing a little). .
You hope it doesn’t affect us? After all, this is not the economy of the European Union, whose economic growth this year will be more than twice as slow as that of the United States (it is predicted that the US economy will grow by about 2.4 percent this year). But, unfortunately, historically, the ECB usually lowered interest rates only after similar decisions by the Fed. Eurozone economic growth forecasts have been downgraded this winter. It is predicted that the economy of the euro zone will grow by only 0.8 percent this year. (the growth of the entire European Union (EU) economy is forecast to reach only 0.9 percent)”, V. Janulevičius shared the forecasts.
As if that were not enough, as the LPK president notes, a few days ago, 4 German scientific organizations jointly published joint forecasts for the growth of the German economy, according to which, while the veto previously predicted 0.3 percent, it is expected that the German economy will grow by only 0.1 percent this year . It is likely that this will also lead to changes in the economic forecasts of the euro zone. True, not for the better.
“The beginning of the year throughout the EU and the euro zone was marked by a fall in the turnover of companies in the industrial sector, and the volume of manufactured products decreased. Orders are not recovering so quickly, demand in export markets is stagnating. The expectations of the construction sector are not improving yet. It is not known whether, after surviving the winter season, the orders of civil engineering construction and industrial companies will become more active in the spring. In addition, very few permits are issued for the construction of residential housing.
In turn, the increase in orders from industrial companies is associated with the expected transformation of the industry supported by the Economic Recovery and Resilience Facility (RRF). However, even if calls for applications are published, it is clear that the real money appears in the economy much later. In our case, it is likely that this will happen only in late autumn”, said V. Janulevičius.
In this situation, only one thing is encouraging – unemployment indicators. The latter did not grow significantly not only in Lithuania, but also in the EU and the euro zone. In February, the unemployment rate in the EU was the same as a year ago – it reached 6.0 percent. At that time, the unemployment rate in the euro area was even lower than last year, reaching 6.5 percent. In Lithuania, the unemployment rate increased slightly during the corresponding period – by 0.3 percent. and reached 7.4 percent.
“But even this single good result can be deceptive enough. Companies need to make money in order to continue to ensure wage growth and implement investment projects. And for that right now, we just need demand.
Cutting interest rates, even if it does not fundamentally address the demand problem, could be a sign of goodwill that eurozone macroeconomic decision makers are contributing to economic recovery. We need to infuse the political will as soon as possible to put the correct comma “you can’t wait, reduce!”, urged V. Janulevičius.
2024-04-08 17:15:50