The global economy currently has favourable conditions for faster growth. In Eurozone, mood index level is the highest since 2011. This will also be reflected in better growth conditions in Latvia, as stated in SEB Bank’s latest Nordic Outlook.
Eight years have passed since the global economic crisis. There are signs that show the world economy is entering a new cycle – investment cycle – which is characterized by the desire to invest to make more money, as BNN was told by SEB Bank experts.
Changes in the policy of central banks are gradually becoming clearer. The zero interest rate and money printing stage is coming to a close. «The wounds caused by the global crisis have healed and central bank policies are gradually returning to normal. This means the money-printing and securities procurement programme age is coming to an end,» says SEB Bank’s macroeconomics expert Dainis Gaspuitis.
Trumpoconomy in USA
Chances of USA’s economy improve. This is because of positive trends on the labour market, which will be sufficient for unemployment level to continue declining. The expected wage growth rate is close to 3%. Growth will be improved by high activity on the labour and housing market. On the other hand, economic growth in USA may be delayed by President Trump’s promised austerity measures, development of geopolitical events, interest rate and dollar value rise.
Trump’s promises have left a positive effect on the country’s economy. But the question of just how many of his promises he will be able to realize remains open. Major optimism growth is noted among small and medium companies, because they would benefit directly from reduced corporate income tax and the promised 20% import tax. Import tax would reduce interest for options to relocate production to countries in which production costs are lower. «USA has a relatively closed economy, because its external trade reaches only 15% of GDP. This means USA can afford realizing such a policy,» Gaspuitis says.
«Trump’s action plan remains unknown, but it is clear that it will not be possible to fulfil all promises. Some clarity will come at the end of April, when the US Congress will receive the budget project. But even now it is clear Trump’s plan will be based on three whales: tax reduction, investment in infrastructure, reduction of budget expenses and bureaucracy,» says the expert.
SEB experts predict economic growth rate in USA will be 2.6% in 2017 and 2018.
Economy in Europe ignores politics
Economic indexes in Europe continue improving. Over the course of 2016, Eurozone member states have created two million new jobs. Employment has already reached the pre-crisis level. The investment climate will continue improving this year.
«There are also political risks. The upcoming presidential elections in France should be mentioned as the most important event. If the outcome activates a wave of populism, it could affect elections in other countries and change Europe’s road for the future,» Gaspuitis says.
It is expected that the total volume of Eurozone member states’ economies will grow by 1.8% in 2017 and 1.9% in 2018.
In Russia, fragile growth will maintain oil price around USD 55 per 1 barrel. Economic growth in Russia is predicted at 1%. However, geopolitical factors can easily turn that into stagnation or recession.
In the next couple of years, oil price will likely balance around USD 55 per 1 barrel. Petrol and other energy resource price growth will enhance inflation. «Return of inflation is another positive symptom that means the return of the economy back on its rails. But no sharp inflation surges are expected – inflation is expected to grow gradually in Europe and Latvia,» predicts the expert. The first factor that will hold back inflation growth is slow wage rise.
Latvia follows positive trends
Latvia’s economic trends will be dictated by positive trends in the next several years. Consumption will continue growing, export volumes will continue increasing and EU funds will continue improving investments and stimulating the construction sector. Actual wages will grow and unemployment indexes will decline slightly.
«Latvia will be a leader among Baltic States in GDP growth this year and the next. The country’s GDP growth will be 3.5% in 2017 and 2018. Estonia’s economy will grow 2.2% this year and 3.1% next year. Lithuania’s GDP will grow 2.5% this year and 3.1% next year,» Gaspuitis said.
Wage growth rates are expected to be different in the three countries. Wages in Lithuania will grow the most – 6%. Wages in Estonia are expected to grow 4.7%. Wages in Latvia are expected to grow 4%. Average wage in Estonia was EUR 1,119 in 2016. Latvia’s average wage was EUR 847 and average wage in Lithuania was EUR 793.
«At existing wage changes, average wage in Latvia is expected to exceed EUR 1,000 around 2020. Unfortunately, this rate is not sufficient if we wish to change emigration trends. If we want economically active residents to say, wages have to grow more quickly. This matter cannot be resolved by raising minimal wages,» the expert added.