Economics, Financial Services, GDP, Latvia

International Internet Magazine. Baltic States news & analytics Thursday, 02.04.2020, 09:16

Latvia: Finance Ministry cuts economic growth forecast for 2019 to 2.2%

BC, Riga, 14.02.2020.Print version
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 informed LETA/BNS.

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.

"Latvia's economic growth slowed down to 2.1% last year, and the forecast for 2020 has also been affected by a less favorable situation on foreign markets and less favorable developments in several key sectors of Latvian economy, including transport and construction, as well as a significant increase in external risks," explained the ministry.

Thanks to strong personal income growth and low unemployment, private consumption will be the main driver of economic growth in 2020, rising by 3.3%.

The Finance Ministry also predicts that investment growth will be slower than in past several years and export growth rate will remain modest at 2.5%, driven by constrained demand on foreign markets and a decline in transit services. In the coming years, as the situation on foreign markets improves, Latvia's economic growth will stabilize at 2.8%.

Average annual inflation in 2020 is projected at 2.3%, down from 2.8% last year. In the coming years, inflation will continue to decrease and fall to 2% by 2023, said the ministry. Wage growth in 2020 will be slightly lower than in previous years, but still remain comparatively strong as the average monthly gross wage will increase 6% to EUR 1,147.

"In the next few years, wage growth will gradually slow down, stabilizing at 5% by 2023, close to productivity growth," the Finance Ministry said.

The employment rate will remain stable in the medium term, with a slight downward trend, as a result of more moderate economic growth and a decline in the working-age population. In turn, the unemployment rate in 2020 will stabilize at 6.4%, but will continue to decline gradually, falling below the 6% mark by 2023.

In developing its macroeconomic projections, the Finance Ministry relied on conservative assumptions and assessed external and internal risks, which, if materialized, could result in faster or slower economic growth than currently projected.



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