Analytics, Banks, EU – Baltic States, Financial Services, Good for Business, Latvia

The European Commission’s vice president indicated that Europe and Latvia are currently facing similar and interconnected challenges.

“Some of these challenges are affecting us indirectly, some directly and others can potentially affect us in a more or less distant future. Yet small and open economies like Latvia are very sensitive to regional and global instability. This is also determined by the structure of the Latvian economy a large part of which relies on exporting industries, such as food and timber production, as well as services like transport and financial services, which are essentially global,” Dombrovskis said.

“The world and developments in the world become increasingly complex. Solutions are becoming increasingly complex as well and often answers are time-consuming and costly, or they can be found only in collaboration with other countries. The recent refugee crisis and terrorism threats are the most striking examples of this,” Dombrovskis said.

In the medium and long term, the economic growth of Europe and Latvia will depend on how successfully we will integrate with globalization processes, both on the national and corporate level. Using the advantages provided by EU will be of special importance, Dombrovskis said.

In his words, notwithstanding a number of risks like Brexit and instability or conflicts in neighboring regions, the EU economy is showing good results, with growth projected in all member states both in 2017 and 2018.

“Lending in the eurozone might increase amid growing demand, although the profitability of banks in some member states is low, which is due to low interest rates and a high proportion low yield loans. I would like to stress that Latvia is not among these member states. The profitability of Latvia’s commercial banks is among the highest in the EU, and yet, lending to the economy is still rather sluggish,” Dombrovskis said.

In his words, loan prices are generally favorable to growth, because the monetary policy is still supportive. At the same time, it has to be taken into account that soon the EU will not be able to count on favorable external factors, as the oil price, for instance, is on the rise and the euro currency is not expected to drop much lower against the U.S. dollar.