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Saturday 19.08.2017 | Name days: Melānija, Imanta

Nordea: sanctions against Russia would mean rise of unemployment and emigration for Latvia

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU‘It is likely that the European Union will not introduce any actual economic sanctions against Russia or specific economic sectors of the Russian Federation, because this would impact not just Russia’s but also the European Union’s economic interests,’ – said Nordea Markets senior sales manager Gints Belēvičs in his interview to BNN.

‘However, if Russia’s military expansion continues, sanctions may turn from possible to realistic. If sanctions are actually introduced, Latvia’s transport and logistics sector may suffer the most. Nearly 80% of cargo handled by Latvia comes from Russia. Transport of shipments by road is also one of the largest business ties Latvia has with Russian partners. Latvia’s transport and logistics sector gives Latvia approximately 12% of GDP. This means that shortage of cargo flow between Latvia and Russia would have a dramatic impact on companies directly tied to Russia and Latvia’s national economy as a whole. Due to the close ties Latvia’s economy has with Russia and CIS countries, other sectors to be impacted by economic sanctions include clothing, food product and pharmacy sectors,’ – says the bank’s expert.

Belēvičs emphasized that Russia is one of Latvia’s most significant business partner. Any economic restrictions and sanctions introduced against Russia will impact Latvia’s economy as well. Russia ranks third among Latvia’s partners in terms of turnover of goods. If EU sanctions are introduced, Latvia’s export companies and the economy as a whole will be impacted. ‘It is also worth keeping in mind that Russian citizens make up the majority of tourists that come to Latvia and spend money here. Reduction of their purchasing power or restriction of their travel freedom will leave a negative impact on exports of services.

‘In addition to that, Russia’s economy is currently under weak growth. Residents’ purchasing power and internal consumption is in stagnation. This also makes it harder for Latvian companies to compete under these market conditions,’ – says Nordea Market’s senior sales manager.

According to him, however, the Ukrainian – Russian conflict will not leave a major impact on the global economy. Russia’s share in the global GDP is approximately 3%. That of Ukraine is somewhere around 0.5%. The conflict’s further military escalation may increase concerns over the future and impact investment perspectives in the world.

SEB Banka’s macroeconomics expert Dainis Gašpuitis had previously told BNN that ‘significant sanctions would only be introduced in the event of a military conflict. Therefore, it would be best if such a thing never happened. Some companies will have to focus on other markets and adapt. This will require time. However, experience shows that Latvian businessmen have been through similar periods. The fact that this is possible is proven by experience of other countries that have had met with Russia’s sanctions (Estonia and Georgia). It creates challenges and difficulties, but not the insurmountable kind.’

The Bank of Latvia also predicts the slowing down of Latvia’s economic growth. Economist Agnese Bičevska notes that ‘GDP growth rates will remain at 4% in 2014. While the previous outlook seemed a bit conservative, current estimates suggest an even more pessimistic outlook, because predictions regarding the role of export have significantly reduced.’

‘The impact of tension between Russia and Ukraine on Latvia’s economic growth will be negative. However, it should be said that it will not be the same for all companies and sectors. These events will likely reduce external demand. Nevertheless, it is no less important to keep in mid exports of goods and demand for them. Demand for medicine and canned products may remain the same or even grow,’ – says Bičevska.


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