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Sunday 20.08.2017 | Name days: Bernhards, Boriss

Economic Diary. A year for growth and big plans

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUFollowing a successful entry in Eurozone, growth rates of Latvia’s economy will increase more than they did last year, economists say. Multiple factors will contribute to this – growth of consumption, exports and investments.

Latvia’s GDP grew 4.2% over the three quarters of the past year, according to data of the Central Statistical Bureau of Latvia. Provisional results of 2013 will be revealed this February. Most economists expect a 4% growth of Latvia’s economy.

However, economists seem even more optimistic about 2014. SEB Bank economist Dainis Gaspuitis predicts a 4.8% increase. He believes it will be a good index that will not allow the economy to fall back down the same holes of ‘fat’ years. However, it is not nearly enough to satisfy residents’ expectations regarding the growth of their standard of living.

According to Swedbank economist Martins Kazaks, export will regain its once lost positions as the situation in Europe gradually improves. Unemployment will likely reduce because of this. According to the economist, this could liven up GDP growth and have it reach 4-5%.

Under the threat of deflation

Following Eurozone entry Latvia also acquired the member states’ common illness – weak inflation growth. Latvia concluded 2013 with a negative growth of consumer prices.

In December 2013, growth rates of prices in Latvia were 0.4% lower than they were in December 2012, as it was reported by the Central Statistical Bureau of Latvia. Latvia experienced deflation the last time in 2009, when GPD dropped to 17.7%. Last year’s prices were reduced in preparation for Eurozone entry. Experts predict a moderate inflation with 1.8-2.5%. Eurozone’s inflation was 0.8% last December. This is significantly lower than ‘a bit below 2%’ – the index that was announced as the target by the European Central Bank.

Meanwhile, ECB’s anti-inflation policy limits itself to the refinancing rate, which had dropped to 0.25% two months ago. Nevertheless, economists do not exclude the possibility of price growth rate reduction. In particular, this could mean an introduction of a negative rate for deposits, which is expected to force banks to divert funds in the economy, not accumulate them in central banks.

Returning to the loans market

This week, the State Treasury sold seven-year bonds worth EUR 1 billion at 2.62%. This is the first such release of bonds for Latvia to be carried out in euro since 2008. After the crisis, such plans were only carried out in US dollars.

The return to the loans market is believed to have been successful, says the head of Swedbank’s Deposit Office Peteris Stepins. According to him, interest rates on the market have reduced by nearly 0.1%, which allows saving nearly EUR 1 million on interest rates annually.

According to the expert, the current release of bonds will become a starting point for the State Treasury: it will help evaluate demand of European investors and their intention to buy Latvian bonds in the future. Taking into account Latvia’s current positive image, the next release of bonds will likely have a longer interest rate period, he predicts.

The government does not plan to stop there. According to the head of State Treasury’s Office Zanda Gintere, the funds acquired thanks to the latest release of bonds – EUR 1 billion – is only half of the planned amount of money to be attracted this year. This means there will be other releases of state bonds.


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