Lithuania’s economic growth has accelerated. According to the flash estimate of Statistics Lithuania, in the first quarter of 2017 the country’s real GDP grew by 4.1 per cent year on year. Due to favourable conditions in the beginning of the year, Lithuania’s economy will grow faster than in the previous year, while the positive output gap will gradually increase. The latter indicates how far away the current economic development is from sustainable economic development. For several years the job vacancy rate has been rising, while the number of unemployed persons per job opening was dipping down. There are not only less qualified unemployed persons, but also less unqualified persons looking for a job.
Pressures in the job market will manifest through rapid growth in wages. Although currently a considerable part of growth in wages is associated with the increasing minimum and public sector wages, a shortage of workers is becoming more and more pronounced. This year it should become one of the key reasons for the growth in wages. With the current unemployment rate, relatively high emigration and decreasing number of young persons joining the labour force, it is becoming increasingly harder for companies to find workers, thus competing employers will have to increase wages.
As wage growth outpaces labour productivity growth, companies will be forced to more frequently adjust the prices of goods and services. The growth of payroll is outpacing Lithuania’s economic growth, and this results in the greater labour share in value added. For more than two years it has been higher than its historical average. With sluggish labour productivity growth, the ability of businesses to amortise the growth in wages at the expense of profit is diminishing, thus slowly forcing them to resort to other strategies, i.e. reviewing the prices of goods and services. Lithuania’s economy could avoid this scenario by increasing investment in more productivity technologies.
Although expenditure for productive investments and scientific research as well as experimental development (R&D) in recent years has been growing, Lithuania’s indicators in the EU context are still disappointing. The ratio of Lithuania’s productive investments to GDP in the period of 2011–2015 was one of the smallest in the EU. Lithuania is in a poor place also by corporate investment in R&D. In 2011–2015, investment of Lithuanian companies in R&D amounted to only 0.26 per cent of GDP. For comparison, the ratio of business sector investment in R&D to GDP in Austria, Denmark, Finland, Sweden and Germany stands around 2 per cent, while in Estonia – 0.96 per cent, and in Latvia – 0.18 per cent. Greater investment in R&D would create opportunities for businesses to create higher value-added products, which would help them compete in international markets even with the challenges of employee shortage and rapid growth in wages.
