Latviski English По-русски
Saturday 24.03.2018 | Name days: Kazimirs, Izidors

Swedbank: Latvia should carry out painful reforms

(No Ratings Yet)

Author: LETALatvia is at the crossroads once again. Even though the overblown unbalance of the economic bubble era is long gone and economic growth is once again balanced, Latvia still has much to do.

If Latvia does not carry out definitive, quality and long-lasting reforms in the near future, the pressure of expenses on the general competitiveness will start growing very soon. The reduction of competitiveness would delay economic growth and will threaten the long-term development of Latvia’s economy and the social sector, Swedbank economists note.

Latvia has demonstrated a rapid economic growth in the last few years. How can the country’s economy continue to develop, when the EU, one of the most important export markets, is going through declines? Economic development is cyclic in its nature. Business cycles in different countries are far from being equal. Nevertheless, the painful austerity acts have now paid off – Latvia’s recovery has been more rapid, stable and moderate than that of many other countries. Everything Latvia did several years ago is now being done by other countries hit by the crisis, stated in the latest economic outlook of Swedbank.

According to Swedbank economist Lija Strasuna, Latvia, Lithuania and Estonia will remain the leaders of economic growth in the EU in the next couple of years. However, the difference in growth rates could reduce rapidly. Realization of reforms requires time, but their results also only usually seen after a few years. If no reforms for the increase of Latvia’s economic potential are carried out in the near future, the progression toward the level of developed EU countries will be too slow for Latvia to retain its workforce.

Financial market moods improved at the beginning of 2013. In spite of the rise of the Cyprus crisis, it was relatively calm. The weakest economies will continue to reduce their obligations and will increase their competitiveness a little. The largest central banks of the world will continue their expansive monetary policy. Nevertheless, some challenges still remain, and political decisions continue to be unstable: the fiscal problems in USA are being solved at the last minute, the chaos with the outcome of elections in Italy, the conflicting agreement about providing aid to Cyprus and other recent events do not contribute to stability and do not increase faith in the ability of politicians to make quality decisions, she adds.

In spite of all this, the global economy continues to grow. The general global economic growth is expected to be at 3.1%. However, the situation is far from simple. Germany and China are expected to have a more rapid development than previously projected, while Russia and Southern Europe are expected to slow down. The global economy will increase its development speed to 3.7% in 2014, which is still below its potential. In 2014, Eurozone’s recovery will be more expansive, with no small thanks to Germany. The possibility of a negative scenario, however, is 20%, while that of a positive outcome is 15%.

Latvia’s development model is still directed for export. Given the still weak external demand and the growing competition in the foreign markets, the rise of Latvia’s export will be slower this year. Investments of enterprises will only yield results after some time. Competition will make market expansion more complicated, but as long as the situation in the world recovers, export growth will be largely provided by growing demand.

Latvia’s GDP outlook has been increased to 4.3% for 2013 (previously 4.1%). Export dynamics exceeded expectation at the end of 2012 and the beginning of 2013. This is why export outlook has been improved for 2013.

Inflation of consumer prices was unexpectedly low in the first months of 2013. The reason for this is the beneficial progress of global prices on raw materials and the very weak pressure of domestic factors. This is why Swedbank economists decided to reduce the outlook of the average growth of consumer prices for 2013 to 1.1% (1.9% previously). Global prices on food and oil products are expected to be stable, so prices on fuel, gas and central heating services should not change significantly in Latvia.

The weak influence of domestic factors on prices can be explained by the fact that the economy has yet to use its full potential (capital and workforce). The difference between the actual and potential GDP remains negative. The gap is expected to fade away in the next couple of years. This will increase the effect of domestic factors on prices.

According to Swedbank economist Martins Kazaks, the upcoming elections could bring about slight corrections to economic expectations, but the bank does not expect there to be any problems with unreasonable government expenses in the next couple of years. According to the economist, the real challenge is using the money for well thought through goals, not merely “eat” the money. As long as there are no reforms in the budget, there will be nothing done in practice, Kazaks concluded.


Leave a reply

  1. JPR says:


    Thumb up 0 Thumb down 0

MEP: operations of certain banks in Latvia ruin the country’s reputation

Money laundering is a problem in Latvia, because the activities performed by certain banks ruin the country’s reputation, said member of the European Parliament Krišjānis Kariņš in an interview to Rietumu Radio.

Harmony believes education only in Latvian language is discrimination

Members of Harmony’s Saeima faction have turned to President of Latvia Raimonds Vējonis with a request to halt the parliament’s newly approved amendments to the General Education Law and Education Law regarding education only in Latvian language.

Opinion: UFG and For Latvia and Ventspils were in favour of Vejonis congratulating Putin

Latvia’s President Raimonds Vējonis sent his congratulation to the newly-elected President of Russia Vladimir Putin in order to secure political capital for himself during next year’s presidential elections, says Assoc. Prof. Ojārs Skudra from Social Sciences Faculty of the University of Latvia.

Commissioner: Latvia should provide a clear response to situation in its financial sector

The scandal in Latvia’s financial sector has been reported far and wide in the European Union. This is why it is highly important for Latvia to provide a clear reaction to all this, said Vice-President of the European Commission for Financial Stability, Financial Services and Capital Market Union Valdis Dombrovskis.

Don't joke about bombs at Tallinn Airport, they take it seriously

Estonia's largest airport in Tallinn has from early 2017 received 14 threats of the presence of explosives in the air-travel hub, most of which have been discovered to be just jokes said at the wrong place.

Minister: learning in a single education system using state language is only obvious

Education using state language is our way of ensuring sustainable development of our nation, says Latvia’s Education and Science Minister Kārlis Šadurskis.

Estonian banks close foreigner accounts in wake of ABLV closure

In the wake of the closure of ABLV Bank in Latvia and alleged money laundering via the Estonian branch of Danske Bank, lenders in Estonia are closing the accounts of foreigners, but this threatens the country's successful e-Residency programme aimed at attracting foreign investors.

Latvian Saeima conceptually supports limiting the Bank of Latvia governor’s authority

The Saeima has supported amendments to the Law on the Bank of Latvia in the first reading. Amendments provide that the term of the bank’s governor, his deputy and council members will be five years, as reported by Saeima’s press-service.

Baltic shareholders agree to keep Baiba Rubesa in charge of RB Rail

RB Rail CEO and board chairperson Baiba Rubesa will keep her post. This was decided by shareholders during the 22 March meeting. «The supervisory council had previously mentioned the CEO’s contribution to the company’s development. Still, we intend to find solutions and continue realizing Rail Baltica project,» said RB Rail Supervisory Council chairperson Riia Sillave.

Syrian rebel groups in eastern Ghouta announce ceasefire

In the besieged eastern Ghouta territory in Syria, which has been under heavy air strikes and artillery fire for about a month, several opposition rebel groups have agreed to ceasefire.

EU member states on Skripal attack: «Highly likely» Russia was responsible

The European Union has stated it would recall its ambassador to Moscow for consultations after heads of member states and their governments agreed it was very likely that Russia was responsible for the attack with a chemical weapon on a Russian-British double agent.

Weather to remain cold in Latvia until Easter; more snowfall expected

Weather in Latvia is expected to become cold again after a brief period of warmth. Air temperature will drop again at the beginning and the middle of next week; some areas may experience frost again, as reported by Latvian State, Environment, Geology and Meteorology Centre.

Farmers in Latvia dissatisfied with resolution of electricity-related problems

Two months have passed since farmers in Latvia had received unjustifiably large electricity bills. Countless meetings and discussions have taken place in those two months. Unfortunately, no decisive measures have been undertaken to resolve the problem. Farmers are confused with decision-makers’ incisiveness in a matter important to the national economy, as noted by the Farmers’ Saeima.

Life after 25 May: is this the end for free publication of photo galleries from events?

Many of us like to check out photos from concerts, conferences or sport events on gallery portals and social networks to have a look at guests of those events. However, after 25 May, when General Data Protection Regulation (GDPR) comes into force, the situation will no longer be the same.

Saeima to establish legal framework for Baltic cooperation in disaster prevention

On Thursday, 22 March, Latvian Saeima supported a legislative draft, ratification of which will help create legal framework with other Baltic States in prevention of disasters, as reported by the parliament’s press-service.

Number of complaints with postal services on a rise in Latvia

Public Utilities Commission has compiled information about complaints submitted by residents in regards to postal services in 2017. The number of complaints has increased alongside opposing views about package terminals – the regulator has received 37 complaints in total.

Output of livestock products in Latvia increased in 2017

Compared to 2016, output of meat grew by 4.6 % and output of milk by 1.4 % in 2017. In 2017, in Latvia 91.2 thousand tonnes of meat were produced, which is 4.0 thousand tonnes or 4.6 % more than in 2016. The most significant increase was observed in the output of poultry (of 11.3 %) and pork (4.7 %).

Turkey's offensive in Syria condemned by NATO ally Germany

Angela Merkel, the head of the German federal government has stated that Turkey’s military offensive in the northern Syrian town of Afrin was unacceptable and she blamed Russia for simply watching, while attacks by Syrian government forces on besieged eastern Ghouta continue.

Finance minister still believes tax reform in Latvia has brought results

«The tax reform has given us the results we had expected, especially in regards to combating envelope wages,» said Latvia’s Finance Minister Dana Reizniece-Ozola in an interview to 900 seconds programme of LNT.

Planned hospital reorganisation in Lithuanian regions irks both mayors and patients

If the plan of the Lithuanian Ministry of Health to overhaul treatment services in the provinces does not hit a snag, the rural hospitals will be soon providing only essential care and nursing, the focus will be on out-patient care and treatment will be available only in larger county hospitals.

Ventspils beach high in popularity this week; Lembergs gets spotlight time as well

Ventspils ended up in the spotlight in an unusual way this week: seals washed up on the beach there. Animal Freedom emphasizes that human contact with baby seals would hurt them. Residents are asked to maintain at least 50 m distance from them. However, the suspended Mayor of Ventspils Aivars Lembergs decided to take photos with baby seals and publish them on his Facebook profile.

Ombudsman: problems in nursing homes and social care centres are associated with lack of funding

Problems in nursing homes and social care centres are largely associated with lack of funding, because it is not possible to perform high-quality work using currently available resources. This is the responsibility of ministries and the government, as ombudsman Juris Jansons mentioned in an interview to Latvijas Radio.

Estonian music authors receive record royalties for 2017

The organisation, which is tasked by collecting royalties for local and foreign music in Estonia, the Estonian Authors' Society, has received six million euros in royalties in 2017, which is its record level.

Facebook sorry for permitting exploitation of 50 million user data in politics

Facebook CEO Mark Zuckerberg has apologised for the social network failing to ensure enough privacy to its users that allowed for data on about 50 million of its users to abused by a political consultancy firm.

Zhdanok’s replacement to promote non-citizen matter in European Parliament

Miroslavs Mitrofanovs, who has taken Tatyana Zhdanok’s place in the European Parliament, plans to promote the matter of non-citizens in the institution.

Newest comments