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Saturday 27.05.2017 | Name days: Loreta, Dzidra, Gunita, Dzidris

Dombrovskis: Latvia’s economic growth is better than expected

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUEurope’s economy begins the fourth year of recovery and continues to grow moderately, which is mostly dues to consumption. The majority of the world’s economies, meanwhile, are experiencing major challenges. This serves to increase growth risks in Europe, as noted in the European Commission’s winter outlook.

Vice-President for the Euro and Social Dialogue Valdis Dombrovskis said: «Europe is continuing its recovery, with growth broadly in line with our previous forecast in autumn. We have to remain attentive. Europe’s moderate growth is facing increasing headwinds, from slower growth in emerging markets such as China, to weak global trade and geopolitical tensions in Europe’s neighbourhood. It is important to continue structural reforms that can help our economies grow, withstand shocks in the future, and improve job opportunities for our population.»

In regards to Latvia’s economic growth, Dombrovskis said: «Latvia’s economy demonstrates stable growth, which is better that what the EC had predicted in autumn last year. Instead of the previously predicted 2.4%, Latvia’s economy grew 2.7% in 2015. This year’s economic growth is expected to be 3.1%. Faster growth rates are related to the fact that Latvia’s economy successfully uses global conjuncture – low energy prices and low interest rates on international finance markets. Banks have begun providing loan services more actively to companies and households, which is important for the stimulation of the national economy. Internal demand and investments are the main economic growth engines. Latvia’s economic growth rate is significantly above that of the average in Eurozone and European Union (1.7% and 1.9% respectively). Latvia continues demonstrating the highest growth rates among Baltic States. For the first time since the end of the last crisis, unemployment in Latvia dropped to a single digit value – 9.9%. It is expected this positive situation will remain in 2016 as well, when unemployment is expected to drop to 9.2%. Latvia should continue using the beneficial state of its economy to realize structural reforms, which are an important factor for attracting investments and enhancing the country’s competitiveness.»

Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici said: «The European economy is successfully weathering new challenges this winter, supported by cheap oil, the euro rate and low interest rates. Nonetheless, the weaker global environment poses a risk and means we must be doubly vigilant. There is more work to do to strengthen investment, enhance our competitiveness in a smart way and complete the job of fixing our public finances.»

Economic results of all member states were either positive or stable in 2015. It is expected that economies of all member states will have expanded by 2017. GDP growth rates will remain varied, which can be explained with structural changes and certain cyclic positions.

It is expected that private consumption will remain the main driving force behind economic growth this year and the next. Investment should also gradually benefit from increasing demand, improved profit margins, favourable financing conditions and gradually lower pressure to deleverage.

Employment should continue to rise modestly. Unemployment rates are set to continue falling, albeit at a slower pace than last year. The decline should be more pronounced in Member States where labour market reforms have been implemented. The unemployment rate in the euro area is expected to fall from 11% in 2015 to 10.5% in 2016 and 10.2% in 2017. In the EU unemployment should fall from 9.5% in 2015 to 9.0% this year and 8.7% next.

Eurozone’s total government budget deficit index will continue to decline, largely thanks to increased economic activity and lower interest expenditure.

In the euro area, the general government deficit is expected to have fallen to 2.2% of GDP in 2015 (EU 2.5%) and should fall further to 1.9% of GDP this year (EU 2.2%) and 1.6% of GDP in 2017 (EU 1.8%). The fiscal stance of the euro area is expected to become slightly more supportive to the economic recovery this year. In the EU, it is set to remain broadly neutral. The debt-to-GDP ratio of the euro area is forecast to decline from its peak of 94.5% in 2014 (EU 88.6%) to 91.3% in 2017 (EU 85.7%).

Annual inflation in the euro area was only slightly above zero towards the end of 2015, mainly due to a further drop in oil prices. Consumer price increases in the euro area are expected to remain very low in the first half of the year and should start picking up in the second half when the impact from the sharp fall in oil prices abates. For 2016 as a whole, euro area annual inflation is now forecast at only 0.5%, partly because wage growth remains subdued. Inflation is expected to pick up gradually and to reach 1.5% in 2017 as higher wages, higher domestic demand and a moderate pick-up in oil prices increase price pressures.

Given the deterioration of the global economic outlook, the recovery of the global economy (excluding the EU) is now forecast to be slower than expected in the autumn. In fact global growth in 2015 is set to have been at its weakest since 2009. Euro area export growth should accelerate over the course of 2016 following a moderation in the second half of 2015. This is due to lagging effects from the euro’s past depreciation, lower unit labour costs, and a gradual increase in foreign demand.

Ref: 102.109.109.9722


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