Keeping in mind the somewhat favorable external environment, an incredibly durable optimism of Latvian businessmen and residents as well as a wonderful flexibility of exporters, Swedbank increases Latvia’s economic growth projections by 2.5% this year, and by 3.5% next year. January is expected to have a 2% and 3.2% increase.
Consumer prices are also expected to go up this year because oil prices went up significantly in the beginning of the year. Employment and wages continue gradually increasing, however, job market problems could increase next year, if the reforms are not implemented by then.
The world development base scenario still has a lot of risks. The worst case scenario (probability 30%) could come to pass, if the oil price continues to grow because of the geopolitical disputes on the Middle East and oil supply decrease. In that case, inflation in Latvia could be higher in both 2012 and 2013. If the oil price increase slows down the global economic growth, Latvia’s growth would slow down as well, Swedbank Chief Economist in Latvia Martins Kazaks notes.
Because of the sudden increase in oil prices in the beginning of the year, the average consumer price increase projection for this year increased up to 2.8% (the previous 2.4%). However, it is likely that food product prices in the world will remain stable this year, with that the average food price increase in Latvia will be notably slower unlike last year. The average inflation projections for 2013 is, so far, unchanged – around 2.5%.
The assumption of the Maastricht inflation criterion in 2013 is real, but the goal has become a more challenging agenda. Firstly, it is still unclear whether the criterion will be calculated. Secondly, it is unclear, whether the long term criterion will be calculated, Kazaks stresses.
Projections about the job market have also become a bit more optimistic, however, employment increase this year will be slower than last year. Using the latest workforce monitoring data (which are still being corrected in accordance with the population census results), it is likely, that the proportion of job seekers will drop under 12% in 2013.
It can be assumed that the average salary will increase by 4% this year and by 5.5% next year, but there is a possibility for a faster growth. The tension on the job market gradually increases. The registered unemployment level in Riga is under 8% and is reaching the level when pressure on salaries will increase, Swedbank Senior Economist Lija Strasuna says.