Flash comment: Lithuania - February 9, 2018

The unemployment rate declined to 7.1% last year and was 0.8 pp lower than a year ago. This seems like great news before one takes a closer look. Apparently, the increase in the activity rate (76% for 15-64 year-olds) could no longer alleviate the negative effect of the shrinking working age population on the labour market. As a result the labour force decreased by 1.3%, compared with a year ago, and was the only reason behind the decline in unemployment.

Meanwhile, the number of employed declined by 0.5% in 2017, compared to the previous year. The decline in employment may not only have a negative effect on household consumption, but also adds to the growing tensions in the labour market, as the shortage of labour is becoming more pronounced.

Outlook: tightening labour market

Activity rate is close to the peak and is unlikely to compensate for the decline in the working age population going forward. Therefore we expect the decline in employment to continue. The decline in unemployment will be slower and is expected to drop to 6.9% this year and stay at the same level in 2019, unless structural unemployment problems are addressed.

Thanks to strong cyclical upswing in the Lithuanian economy, demand for labour will not ease in the short- to medium-term, but filling the vacancies will become increasingly difficult, thus wage pressures are expected to remain high.

For more information about this report, please contact Mrs. Laura Galdikienė, +370 5 258 2275, Laura.Galdikiene@swedbank.lt

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