Flash comment: Lithuania - November 25, 2016
Rapid wage growth continued through Q3
Nominal gross wages increased by 7.9%, while real net wages rose by 7.4% in the third quarter of this year compared with the same period a year.

Wage growth continued to be driven by minimum wage hike and higher non-taxable income threshold as of January 1st. However, this year we see a broader-based growth. Wages increased by at least 5% in all sectors as lack of qualified labour force is affecting a broader spectrum of companies. Divergence between wage growth in private and public sector also diminished in the third quarter.

Outlook: wage pressures will not ease

We expect only slightly easing gross wage growth from 7.8% this year to 6.5% in 2017. Working age population each year declines by more than 30,000 and unemployment rate is getting closer to its natural rate. Declining trend of employment by Lithuanian labour exchange and its divergence from labour demand suggest that wage pressures are here to stay while strong employment growth this year will not continue. This and higher inflation will somewhat slow down purchasing power growth next year. Rising unit labour costs will limit export growth in medium term especially if investment growth will be weaker than expected due to high uncertainty.

For more information about this report, please contact Ms. Vaiva Šečkutė, +370 5 258 2156, Vaiva.Seckute@swedbank.lt

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