Latvia’s economy is currently going through an export based growth, which is one of the most rapid in the European Union (EU). Also, our country’s GDP increase, which reached 6.9% in the first quarter of 2012, is based on a balanced economic structure with no significant macroeconomic instability risks, says Economy Minister Daniels Pavluts, commenting on the report of the Economy Ministry on the development of Latvia’s national economy.
«Production output and export volumes now exceed pre-crisis levels. Export increase is related to the increase of foreign demand, but, more importantly, it is also related to the increase of competitiveness of Latvian producers,»- says the minister.
He says that this is good news. It gives a good reason for careful optimism about the perspective of Latvia’s growth. At the same time, with the increase of GDP foreign trade deficit also increases and the question about future output and export volumes and the increase of competitiveness of Latvian companies remains in the centre of attention, Pavluts says.
It is noted that growing risks on foreign markets, especially within the Eurozone, did not significantly affect Latvia’s economy in the second half of 2011 and in the first half of 2012. Latvia’s growth is currently the most rapid one in the EU – GDP grew by 1.1% in the first quarter of 2012 (according to seasonally adjusted data) compared with the previous quarter by 6.9%, EM data states.
With export increasing, production output of processing industry keep increasing as well – industry production volumes were by 11.7% larger in 2011 than they were in 2010, they grew by 16.5% in the first quarter of 2012 compared with the first quarter of 2011. Production volumes increased in almost all manufacturing sectors, especially in woodworking, metalworking, electronics, machinery and equipment. Overall, the manufacturing industry in 2011 provided an average of ¼ of the total economic growth. Increase in revenue from exports had a positive impact on the industry in the domestic market, especially in trade and construction sectors.
It is also said that increase of employment and gradual salary increase contribute to the increase of private consumption. Private consumption exceeded 2010 level by 4.4% in 2011, and exceeded the level of the first quarter of 2011 by 5.4% in the first quarter of 2012.
It is also noted that investments keep increasing as well. The increase of investments is largely due to such industries like energy, woodworking and metal product production.
«Even though 2012 began with positive tendencies in national economy, external risks related to the future development of the situation in the Eurozone remain. With increasing growth rates in our main trade partner countries, Latvia’s export increase could become more moderate, and its positive effects on the national economy could decline. Nevertheless, GDP growth will be more rapid in 2012 than it was previously projected and can still reach 5%,»- said in the ministry’s statement.
The EM notes that medium term growth of national economy will be mainly dependent on two factors. First, the decision that the Eurozone countries will make in relation to solving the situation in the finance sector to avoid a possible economic stagnation. The second factor is the effectiveness of the structure policy of the Latvian government in improving the country’s economic competitiveness.
In the event of a rapid growth scenario in a medium term perspective Latvia’s growth rates could reach a stable 5% increase per year. In the event of a slower growth scenario, with a weak growth in Europe and the inability to improve the competitiveness of trade industries, the recovery of Latvia’s economy from the crisis could be performed much slower.