Analytics, Baltic States – CIS, Economics, GDP, Investments, Latvia

The study says that national economy development indexes for the fourth quarter of 2013 were close to the projected figures. The data available for the 1st quarter of this year are also inline with the original projections, therefore the GDP growth forecast for 2014 remains unchanged.

The Bank of Latvia notes that investments in Latvia may be growing faster than anticipated this year thanks to the steady economic development, utilization of production capacities and intensive absorption of the European Union funds. However, risks in the external environment have also increased mostly due to the weakening economic activity of Russia and uncertainty about the further development of the situation in Russia and Ukraine. Therefore downward risks to the economic growth prevail.

Economic growth pace in Estonia and Finland decelerated last year, but the gradual decrease in the pace at which the Russian economy is growing is particularly important to Latvia. The situation is further affected by the increasing tensions and lack of clarity about the relations between Ukraine and Russia, which may contribute to weakening of the economic growth in the region and, as a result on the national economy of Latvia, particularly the manufacturing industries' export, tourism and transport sector, notes the Bank of Latvia.

Nevertheless, the eurozone's GDP is expected to increase in 2014 – for the first time since 2011.

The Bank of Latvia's average HICP inflation forecast also remains unchanged for this year at 1.7%. The main risk to this forecast is the postponement in the deregulation of the electricity market for households. This may reduce inflation by up to 0.6 percentage points this year – and respectively increase it in 2015.