Latviski English По-русски
Saturday 23.06.2018 | Name days: Līga

Russian-Ukrainian conflict expected to reduce economic growth in the Baltics

(No Ratings Yet)

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe recent developments in the world and Russia in particular demonstrate that there is no time to relax, even during good economic growth periods. Everyone should be prepared for unpleasant turns of events. The Russian-Ukrainian conflict will reduce Latvia’s economic growth this year and next year. Economic growth will remain positive nonetheless, as it is mentioned in Swedbank’s latest economic outlook.

Short-term negative impact will be concentrated in specific companies and economic sectors. There will be events that will likely impact Latvia’s weakest sectors in a long-term perspective. This is especially true for energy security, says Swedbank’s chief economist Martins Kazaks and senior economist Lija Strasuna.

It seems that economic growth in Eurozone has stabilized and, after last year’s 0.3% drop, economic growth will likely rise by 1.3% this year and 1.9% next year. However, latest developments in Russia have forces economists to review economic outlooks. In its basic scenario, Swedbank assumes that the Russian-Ukrainian conflict will no escalate further in the near future. The situation is expected to gradually stabilize and sanctions from western states are limited and moderate in their scale. There may be a brief reaction from Russia in the form of short-term trade barriers.

According to the bank’s experts, under this scenario Russia’s economy will likely drown in recession this year and will grow by only 0.8% this year and next year. Russian ruble’s value will continue to reduce, although the process will not be as rapid as it was in the beginning of the year. Russia’s economy is structurally and institutionally too weak to generate enough power for rapid growth and income rise. On top of that, the outflow of money and higher interest rates due to the Russian-Ukrainian conflict will only reduce investments and cripple growth potential. Household consumption, which has been Russia’s main economic growth engines until now, continues to gradually lose its power. Unemployment has reached its lowest point. Employment does not seem to grow and income growth is becoming more stable. Export growth is further reduced by the rising global trend for oil prices to slowly drop. Nevertheless, Russia’s overall level of reserves is high. This reduces risk of deep economic crisis ever coming to the country. It will allow the country to ‘sit one out’.

Economists also reviewed Estonia’s economic outlook. It was reduced to 1.8% this year and 3% next year (January’s outlook was 3% and 3.7% respectively). Among the three Baltic States, Estonia’s economy is expected to grow the slowest this year. This is because the economic tension between Russia and Finland and the labour market. Lithuania’s economic growth is expected to be 3.3% this year and 4% next year.

Economists have also reduced Latvia’s economic outlook for the next couple of years. This is mainly due to external factors and Latvia’s weaker than expected growth at the end of 2013, especially in the field of investments. It is expected that Latvia’s GDP will grow 3% this year and 3.5% next year.

According to Swedbank economists, weaker external demand will reduce export growth. Nevertheless, it is expected that the drop of exports to Russia will be compensated by growth of exports to other countries. The negative impact on the country’s economy is rather concentrated. Specific industries and companies may suffer more than others (food processing and alcohol production). This may apply to the transport sector as well (transit sector in particular).

Higher degree of uncertainty may force businessmen to postpone their investments (especially those who export goods to Russia and CIS countries), as well as delay the inflow of foreign investments.

Considering the rather conservative way the 2014 budget was compiled in Latvia, it may cause a slower pace of economic growth. Tax revenue continues to grow and this year’s first quarter had nearly met its plan.

The trend of having the state spend more money is becoming more and more apparent – this includes pension indexation for those employed in the public sector and the necessity of complying with NATO requirements. According to economists, economic growth will be slower than expected. With that, tax revenue will grow slower than expected. A reduction of labour taxes and no increase of other taxes, according to Finance Ministry, will help reduce the current tax burden from 27% of GDP to 25% in 2016. ‘What it means is that the pie, which has to be divided among state and municipal budgets, will become even smaller. It is a discussion politicians have been trying to avoid, but ignoring the problem will not make it go away. The size of the tax burden and its division is one of the most important matters to discuss in the planning of the next year’s budget, which is due to begin soon,’ – the economists conclude.


Leave a reply

  1. Commentator says:

    The Estonian flag is upside down…

  2. Linda says:

    well spotted. An African state has the same colours but not sure which one and in what order.

SRS uncovers numerous violations more than half of inspected companies

State Revenue Service’s Tax Control Office performed a total of 305 thematic inspections of employers in Latvia in Q1 2018. Authorities recorded violations in 171 inspections, according to information from SRS.

Third level pension plan deposit volumes reach new record value

Residents’ interest for pension savings remains high. The volume of deposits made to private pension funds in the first three months of 2018 has reached a new historic peak: a total of EUR 16.5 million has been paid to 3rd level pension accounts, which is 11.6% more when compared to the same period of 2017, as reported by Finance and Capital Market Commission.

Petrol station network in Latvia caught performing fraudulent activities with diesel fuel

State Revenue Service’s Tax and Customs Police have uncovered and put an end to a fraudulent scheme with diesel fuel performed by some network of petrol stations in Latvia, as confirmed by the service.

Kaimiņš: I believe CPCB is performing a political order

In the evening of Thursday, 21 June, Corruption Prevention and Combating Bureau released three people previously detained as part of a criminal process regarding possible illegal funding of KPV LV party – Saeima deputy Artuss Kaimiņš, his colleague Atis Zakatistovs, and businessman Viesturs Tamužs.

Latvia’s parliament conceptually supports new sanction regulations

On Thursday, 21 June, Saeima supported in the final reading amendments to the Law on International Sanctions and National Sanctions of the Republic of Latvia that are meant to improve sanction regime regulations to ensure efficient application of national and international sanctions, as reported by Saeima press-service.

Storm in Tallinn floods streets, cuts Croatia-Argentina match short on TV

A rain storm has hit northern Estonia on Thursday, flooding some streets in the capital Tallinn, damaged buildings and badly affected the broadcast of an interesting World Cup game.

American banks tested for financial stress show positive results

The U.S. has performed banking stress tests and found that the 35 largest banks operating in the country have enough funds on hand to sail safely through a severe financial crisis.

Saeima fires judge for coming to work in a drunken state

On Thursday, 21 June, Latvia’s parliament supported the proposal to dismiss Rezekne Court judge Arvis Garais from his post. 71 deputies voted in favour, no one abstained and no one voted against.

UK to have three requirements to EU citizens willing to remain in UK

For citizens of the European Union willing to continue living in the UK after the country leaves the bloc, they will have to submit applications and answer three key questions over the internet, according to the country's interior minister.

Weather in Latvia to be rainy and cool during Ligo; next week’s weather to be dry and hot

Weather at the end of the week in Latvia will be dictated by a cyclone. Because of that, there will be instances of rain on Ligo. Weather is expected to improve next week, however, according to Latvia’s State Environment, Geology and Meteorology Centre.

Lithuania’s blood plasma corruption scandal extends to Latvia

The former head of Lithuania‘s National Blood Centre, suspected of corruption and involvement in unlicenced activity, received more bad news this week from Latvia, where investigators of the Lithuanian Special Investigation Service had questioned the Latvian Health minister, Anda Čakša.

Administrative burden to be reduced for foreign students and researchers

The administrative burden will be reduced for foreign students and researchers, as well as all education and research institutions hosting them. This is provided by the amendments to the Immigration Law approved by the Saeima in the third reading on Thursday, 21 June.

Latvian Economy Minister endures no-confidence vote

Saeima declined opposition deputies’ request for dismissal of Economy Minister Arvils Ašeradens.

Swedbank economist becomes new member of Bank of Latvia Council

On Thursday, 21 June, Latvia’s Saeima approved Mārtiņš Kazāks in his new post as member of Bank of Latvia Council, as confirmed by Saeima’s press-service.

Pope Francis’ visit to Latvia will be a national holiday

Latvia’s parliament has approved in the final reading a law that makes 24 September – the day Pope Francis plans to visit Latvia – a national holiday.

ICT specialist numbers in Latvia are below Europe’s average level

In Latvia, information and communication technology specialists form only 2.2% of all employed people in the country, which is considerably below the average level in the European Union – 3.7%. Romania and Greece are the only two EU member states in which the number of ICT specialists is below Latvia’s, according to European Commission’s DESI index.

Hungary adopts prison sentence for helping migrants

Hungarian National Assembly has passed a set of laws criminalising with prison terms some help provided to illegal immigrants by non-governmental organisations.

Harmony plans turning to Constitutional Court to prevent transition to Latvian language in schools

«Why should this reform stay unrealized? It is because schools are not prepared for cardinal changes coming from dozens of other reforms that have already shocked the country’s entire general education system,» says chairman of National Minority School Parents Forum and member of Harmony’s work group in Konstantīns Čekušins.

Deputies detained in KPV LV criminal case not declared suspects yet

Saeima deputy Artuss Kaimiņš and businessman Viesturs Tamužs detained in the criminal process regarding possibly illegal funding of KPV LV party have not yet been declared suspects. Both are currently in police custody. It is likely Kaimiņš will be released later today, 21 June.

Production of mines and grenades planned in Estonia

As the Estonian parliament has adopted new rules on military arms and ammunition production in the country, local defence firm Eesti Arsenal has voiced its plan to build a factory in Estonia to make military explosives.

Total tax debts in Latvia reached EUR 1.224 billion in June

At the beginning of June, total tax debts in Latvia, including topical, halted debts and extended repayment terms were equal to EUR 1.233 billion, which is 0.6% less compared to May, as reported by State Revenue Service.

Switch off internet nationwide during exams – Algerian approach

In an attempt to prevent cheating during secondary school exams, the north African nation Algeria, has turned off internet in its whole territory.

Control Service proposes kicking out shell companies as intensely as offshore companies

Shell companies in Latvia should be combated with the same intensity once shown to offshore companies, says chief of Anti-Money Laundering Service Ilze Znotiņa.

EU imposes tariffs on blue jeans, motorcycles and other U.S. export goods

The European Union will introduce retaliatory tariffs against U.S. exports on Friday, EU Trade Commissioner has stated a top official has stated in the bloc's reaction to Washington imposing steep duties on steel and aluminium earlier in June.

Latvia’s Saeima proposes improving job-combining rules for state officials

On Wednesday, 20 June, Latvian parliament’s Public Administration and Local Government Committee decided to submit for review amendments to the Law on Prevention of Conflict of Interest in Activities of Public Officials.

Newest comments