Latvia’s GDP is growing, owing its rates mainly to processing industry, construction, transport and communication industries. However, growth rates will drop in the coming quarters of the year. Also, economic growth is mainly based on internal consumption increase. Bank economists give their projections.
Bank of Latvia economist Igor Kasyanov:
Latvia’s GDP growth has been positive and stable. It is expected that GDP growth rates will drop a bit in Q3 of 2012, but growth will remain better than in some other European countries. Risks that slow Latvia’s growth will remain throughout the year. Even though Latvian manufacturers and exporters successfully continue to diversify their product and client portfolios, it should be remembered that Europe is not the only one with economic problems. China’s economic growth is gradually slowing down, USA’s economy is nearing another debt “barrier”, and the growing oil, food and other product prices threaten industrially developed economies.
Development of the budget for 2013 will be most important in the second half of the year, especially given the coming municipal elections. We need to continue structure reforms in education, healthcare, energy and business environment. It will provide medium and long-term development of the national economy.
Latvia’s national economy is on the right path – we are growing in spite of the European and global economic problems. It is proved by 11 quarters of economic growth in a row. It proves that the decisions made in the past have been successful and that we need to continue working on new reforms to ensure stable growth in the future.
Swedbank chief economist Marting Kazaks:
Growth is slowed and previous tendencies remain. Along with unemployment rate reduction, stable attitude and slow salary growth, the desire of households to spend more also grows. Household expenses have grown by 7.2%.
Activity surrounding base capital investments is still very high, but its rates have decreased to 20.5% (39% in Q1). Investment activity is mainly turned towards increasing production output, as well as formation and restoration of companies’ infrastructure. Investment volume is still insufficient in Latvia. Quality investments in export are desperately needed for production output and infrastructure improvements; without them, Latvia’s growth will soon drop. Therefore, we need to continue to invest money!
Latvia’s economy continues to recover, but growth rates grow slower. The role of households in the economy is growing again. Even though households can afford to spend more money, they should also think about making precaution pillows.
SEB Bank economist Dainis Gaspuitis:
As a whole, the total increase has been 5.9% in the last half-year, which is very good on the background of our Baltic neighbours. Export plays a major role in Estonia’s and Lithuania’s, with that there is currently a notable export rate slowdown because of GDP changes from within. Deciding events will transpire on the export markets, in other words – in the ability to preserve current positions. Meanwhile, Eurozone is drowning in recession. The situation could become clearer in the middle of next year, even though there is no guarantee the leaders of Europe will manage to find a solution for the crisis. If the situation in Eurozone does not go out of hand, growth rates in the second half-year will become slower, but they will remain.
DNB Bank economic expert Peteris Strautins:
The change of political course will help internal consumption. No one expects the current government to suddenly begin windy money spending activities, and it is good. However, any additional budget deficit reduction measures will be insignificant on the general background of budget consolidation. Maybe there is no reason for concern, because, in any case, there is very limited chance to accurately predict such a complicated and chaotic process, especially given the fact that we are talking about Latvia.
Nordea Bank senior economist Andris Strazds:
The negative effect of the Eurozone’s debt crisis has so far been less significant than expected and even in the event of a very high drop in economic growth rates in Q2, it is still clear that Latvia’s economy will grow by more than 4% during the year. The only significant risk would be the beginning of a military conflict between Israel and Iran.