Analytics, Economic History, Financial Services, GDP, Latvia

International Internet Magazine. Baltic States news & analytics Saturday, 04.12.2021, 07:32

Projections on possible slowdown in economic growth is quite realistic - Fiscal Discipline Council

BC, Riga, 18.02.2020.Print version
The Ministry of Finance's forecast that Latvia's gross domestic product (GDP) growth this year will be 2.2%, or 0.6 percentage points lower than previously forecast, is quite realistic, BC was told by the Fiscal Discipline Council (FDP).

The Council agrees with the ministry's analysis that the economic slowdown in 2019 will continue in 2020. At the same time, the FDP drew attention to a number of global and domestic risks that could inhibit economic growth in the years to come, particularly in 2021 and 2022. 

"In Latvia, for the second year in a row, the winter climate is warmer than usual. This impacts the heating market and the forestry sector, and it is expected that this global factor will continue to have a negative impact on economic growth in our country," the FDP points out.

In regards to 2022, the Council believes that the volume of public investments should decrease as the absorption of EU funds will also decrease. Thus, construction companies could use waiting tactics when evaluating signals regarding the next EU financing cycle.

The FDP also mentioned as one of the risks the downturn in the freight transit sector, which started in 2019 and could continue into 2020-2022, especially in the port segment. The Council explains that freight carriers have already invested in shifting freight flows to other ports, and another reorientation of traffic flows would create unwanted additional costs.

"The banking sector in Latvia has very low lending activity, and non-residents are currently having difficulty opening and managing accounts," the FDP said. ''Further consolidation of the banking sector is also expected and for these reasons, banking growth may slow down.''

The Council also drew attention to the risk of a new and unpredictable coronavirus epidemic announced in early 2020, which has already had a negative impact on the global economic performance in 2020. Risks from previous years also remain, including uncertainties about China's relations with its trading partners, including the EU and the US, and Britain's exit from the EU.

"Finance Ministry's GDP growth forecast for 2020 is conservative and broadly in line with European Commission (EC) estimates, while 0.4 percentage points lower than those of the Bank of Latvia and 0.6 percentage points lower than those of the International Monetary Fund. The inflation forecast for 2020 is conservative and in line with the EC forecast. In addition, average gross wage growth from 2020 to 2023 is projected to be slower than in previous years yet stable, which will stimulate private consumption at low inflation,'' the Council noted.

As reported,  according to the Finance Ministry's latest gross domestic product growth forecast, Latvia's GDP will grow by 2.2% this year, which is 0.6 percentage points less than in the previous forecast.

Last year, the Finance Ministry anticipated Latvia's GDP growth in 2020 to be close to 3%.

The Finance Ministry has started working on Latvia's Stability Program for 2020-2023, and released macroeconomic development forecasts for the period up until 2023.

According to the latest forecasts, Latvia's economy will grow by 2.2% in 2020, economic growth will accelerate to 2.8% in 2021 and 2022, while in 2023 Latvia's GDP will increase 2.4%.

Compared to the previous forecasts released in June 2019, the GDP growth forecast for 2020 has been reduced by 0.6 percentage points, while the forecasts for 2021 and 2022 remain unchanged.

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