Flash comment: Lithuania - November 26, 2018
Rapid wage growth continues

Annual gross wage growth decelerated very slightly to 10% down from 10.5% a quarter ago. Private sector wage growth slowed to 9.3% from 10.4% annually. Meanwhile public sector wages accelerated further to 11.3% annually. Net wages increased by 9%, while real wages increased 6.6% annually. Despite a slowdown in net wages, change in real wages stayed nearly the same since last quarter due to lower inflation in Q3.

Increase in wages was broad across sectors. Leaders in wage growth are largely unchanged since the last quarter. Salaries of medical and health services employees increased by 18% annually, accommodation and food services – 15.3%. Financial services have lagged behind a bit with 4.6% annual wage growth. Overall the sectors with the fastest wage growth have either acutely pronounced labour shortages or are related to public sector where wages have been lagging behind for several years.

Outlook: Wage growth is set to ease in the future

It is unlikely that the economy can sustain such an elevated wage growth above productivity for a prolonged period of time without inducing significant inflationary pressures. We expect wage growth to ease next year down to 7% and to 4% in 2020. Rapid increase in labour costs could bite into firms’ competitiveness and profit margins and leave less room for growth.

On the other hand currently there are few signs of it yet. The main contributors to wage growth have been public sector areas, where wage hikes have been long overdue. With election cycle drawing near, there will be a lot of pressure to increase public wages further. It is likely that public sector wage growth will maintain faster pace in the future.

 For more information about this report, please contact:

Vytenis Šimkus, +370 687 17870, vytenis.simkus@swedbank.lt.

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