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Monday 23.01.2017 | Name days: Strauta, Grieta
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Economic Diary of Latvia. Flexibility in relations

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUMutual economic sanctions between EU countries and Russia negatively impact farmers and transport industries of both sides. Cargoes continue declining in Latvia’s ports. In addition, it seems that the only person who can provide assistance is Europe’s last remaining dictator – Aleksandr Lukashenko.

Experts estimate that the damage caused by sanctions to Latvia’s economy is rather significant. This is further backed by indexes of declining cargo turnover in Latvia’s ports and the 23.9% decline of exports to Russia.

Throughout the first eight months of 2015, Baltic ports handled 100,699 tons of cargoes (5.7% less than there was in the same period of 2014). Cargo turnover of Latvian ports has declined 5.1%. Cargo turnover of Lithuanian ports, on the other hand, has grown 6.7%; that of Estonian ports has declined 18.6%.

Although the situation of Latvian ports does not seem all that dramatic, it is still apparent – cargoes headed for Latvia continue declining. As it turns out, Republic of Belarus can assist Latvia in this matter. Latvian Transport Minister Anrijs Matiss has visited this country recently. During his meeting with his counterpart – Anatoly Sivak – Matiss said he is satisfied with the progress of the project for the construction of a Belarus oil terminal at Riga Freeport. Matiss said he hopes this terminal will help increase trust in the stability of Latvia’s cargo transport corridor and further develop relations with Belarus.

Matiss continued by saying that Belarus is an important strategic partner for Latvia in transit. He also welcomed the agreement reached by presidents of Belarus and China to create a joint land route as part of the Silk Road. It is also worth mentioning Latvia’s efforts to diversify cargoes with a special emphasis on Chinese goods. According to Matiss, offers provided by Latvian logistics centres will allow Chinese entrepreneurs reduce costs for end products by 5-7% under the condition that cargoes are put together in Latvia.

President Raimonds Vejonis has also contributed to Latvia’s transit industry during his visit to USA, where he took part in the UK General Assembly. He had also met with President Lukashenko there. Vejonis and Lukashenko discussed future economic cooperation of the two countries. According to Vejonis, Europe should become more flexible in its relations with Belarus and review certain sanctions imposed against the country.

‘Good’ deflation

Local economists have become more flexible toward inflation that was registered in Latvia in September. According to data from the Central Statistical Bureau of Latvia published this week, the average level of consumer prices in Latvia has declined 0.5% in September 2015. The cost of goods has decreased 1.7% and the cost of services – by 2.5%. The last time deflation was registered in Latvia it was February 2015.

Economists avoid dramatizing the situation because the cause for the decline of prices in September was external – decline of prices on oil in August. Fuel at Latvia’s petrol stations has also become cheaper, which became one of the main stimuli for deflation.

According to Senior Sales Manager of Nordea Markets Gints Belevics, although textbooks on economics say deflation is a negative phenomenon, there is no cause for concerns at the moment, because deflation was created mainly by prices of imported resources and goods. This allowed residents spend more money on other things thereby improving the index of the country’s GDP.

DNB Bank analyst Peteris Strautins notes that this phenomenon [deflation], which is often considered to be a herald of economic apocalypse, can happen for good reasons as well; reasons such as technological development. The possibility of good deflation is high in small countries, says Strautins.

For what there is no excuse

Another example of surprising flexibility is related to the diesel scandal, which has recently struck German Volkswagen automobile concern. According to The Wall Street Journal, Volkswagen engineers Ulrich Hackenberg and Wolfgang Hutz are accused of intentional manipulations with emission indicators, a measure they turned to after they failed to create a sufficiently eco-friendly diesel engine.

The gist of it is that diesel engines of Volkswagen cars had been intentionally given a certain defect that was meant to fool tests for harmful emissions. The on-board computer was programmed to differentiate between times when a car was undergoing tests and when it was driving on actual roads. In the first case, the computer would switch the engine and emissions filtration system to ‘eco-friendly’ to help pass the test. In the second case, the computer did nothing, which resulted in emission volumes exceeding allowed thresholds. Passenger vehicles and light commercial vehicles were being released in 2009-2015 period under brands such as Volkswagen, Škoda, Audi and Seat.

According to data from CSDD, there are a little less than 17.5 thousand vehicles from the ‘risk group’ registered in Latvia. They include 11,824 VW; 2,861 Škoda and 2,760 Audi – bought in Latvia as new and imported from foreign markets.

Director General of Volkswagen Aktiengesellschaft Matthias Müller has promised to carry out a quick and merciless investigation behind the diesel scandal.

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