Beginning preparations for the Latvian Stability Programme for 2016-2019, Finance Ministry has already developed macroeconomic index estimates for the period of time all the way to 2019. According to the ministry’s estimates, Latvia’s economy will grow 3% in 2016 and 3.3% in 2017.
Compared with previous outlooks, which were the basis for the preparation of the 2016 budget, GDP growth for 2016 remains unchanged. The outlook for 2017, on the other hand, has been reduced by 0.3 percentage points. The reason for that is the slower global economic growth that previously expected, as reported by Finance Ministry.
Private consumption will remain the main driving force behind Latvia’s economic growth in 2016. It is enhanced further with wage growth and moderate increase of employment in the country. It is expected that economic growth will gradually become more balanced. Investment and export rates will also become more rapid. Export development will benefit from the disappearance of the Russian sanctions’ base effect and the focus of Latvian businessmen on new markets. Stabilisation of the situation in CIS countries will also help.
Following the decline of prices on oil and related energy resources, inflation in Latvia will remain low in 2016. It is not expected to exceed 0.4%. In 2017, price rise will become more rapid, reaching 2%, which will be dictated by the expected stabilization of prices on raw materials in the world, as well as growing demand on the domestic market. In addition to low inflation, growth of actual wages of residents will continue in 2016. It is expected to form 5.1%. However, it will be somewhat lower than wage growth in previous years, when growth of actual exceeded 6%. Average gross wages and salaries, according to Finance Ministry’s estimates, will grow 5.5% in 2016, reaching EUR 858.
In the development of outlooks for macroeconomic indexes, Finance Ministry considered internal and external risks. Positive risks are tied to more rapid growth of loan services in Latvia, more powerful economic growth in the EU and Latvia’s other partner states, European Central Bank’s realized programme for the procurement of securities and the European Commission’s investment plan. Negative risks are tied to the current situation as a whole and are more powerful than positive risks, which is mostly because of the possible escalation of tension in the geopolitical situation and further slowing of economic growth rates around the world. Other negative risks include the low investment level in Latvia and the unbalanced growth of productivity and wages, which could potentially reduce Latvia’s competitiveness.