bnn.lv Latviski   bnn-news.com English   bnn-news.ru По-русски
Ceturtdiena 19.10.2017 | Name days: Drosma, Drosmis, Elīna

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

FaceBook
Twitter
Draugiem
print
(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.

Ref: 102.109.109.5776


Leave a reply

  1. Commentator says:

    The Estonian flag is upside down…

    Thumb up 0 Thumb down 0

  2. Linda says:

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

    Thumb up 0 Thumb down 0

Prime Minister: Latvia cannot accept additional asylum seekers

Latvia cannot afford to resettle additional asylum seekers, said Prime Minister Māris Kučinskis during his meeting with European Commission President Jean-Claude Juncker on Thursday, 19 October.

Scandinavians purchase tourism company in Lithuania; changes expected in Latvia too

Dutch Otravo online travel organization has expanded and has purchased Lithuanian online travel agency Interno Partneris, thereby entering the Baltic market.

Ombudsman: non-citizen status matter should be resolved in next decade

The next ten years may be the transition period to ‘put an end’ to the non-citizen status in Latvia, said ombudsman Juris Jansons in an interview to LTV programme Rīta panorama.

Swedish Foreign Minister: harassment exists at highest political level

The Foreign Affairs Minister of Sweden, Margot Wallström, has commended the current sexual assault and harassment awareness campaign in social media and urged to fellow politicians to address the problem.

Latvenergo recognized as Latvia’s most valuable company for tenth time

Latvenergo has been recognized as Latvia’s most valuable company in 2017. Its value grew 34% in comparison with 2016, according to the TOP 101 list of Latvia’s most valuable companies compiled by Prudentia and Nasdaq Riga.

Number of births and number of deaths decline in Latvia

During the first nine months of this year 15,723 babies were born in Latvia, which is 1,113 children fewer than in the corresponding period of the last year.

CC applies binding conditions for the sale of MTG Broadcasting AB

Latvian Competition Council has decided to permit Bite Lietuva to purchase MTG Broadcasting AB group’s businesses in Latvia. CC has applied several binding conditions to prevent a possible impact on competition on the television services and advertisement market.

Eesti Energia warns: Limiting CO2 emissions on capacity could endanger energy supply

Estonian energy giant Eesti Energia has evaluated that a plan under discussion in the European Union to introduce a carbon dioxide release limit for capacity mechanisms to qualify for subsidies could adversely affect the security of supply in Estonia and the Baltic states.

Solidarity tax norm recognized as non-compliant with Latvia’s Constitution

On Thursday, 19 October, the Constitutional Court of the Republic of Latvia declared the Solidarity tax norm as non-compliant with the country’s Constitution.

Survey: Riga residents go to the doctor’s the most often

34% of residents undergo regular health checks, according to Mana Aptieka & Apotheka health index. In addition, women are twice as serious about health checks as men.

LG cozies up with idea of rebuilding railway tracks to Reņģe, Latvia

Lithuania‘s Lietuvos Geležinkeliai has sent a mixed message as to what it intends to do next following an EC fine of nearly 28 million against it over the dismantling a 19-km railway stretch with the Latvian village of Rengė.

Čigāne: European Union’s social pillar is very important to Latvia

On Wednesday, 18 October, Saeima’s European Affairs Committee approved Latvia’s national position on the introduction of EU Pillar of Social Rights.

40% of all car problems are relate to lighting, battery and security systems

It has been determined that 41% of all car problems are related to lighting devices, 39% of problems are related to malfunctioning batteries, and 44% of problems are related to security systems.

Xi Jinping: Chinese socialism has entered new era

China's ruling Communist Party's five-year congress has been opened with the country's President Xi Jinping outlining a general plan for the future development of China.

Public transport in Latvia procurement may be at risk

Considering that continued and unhindered provision of public transport services on ten routes may become at risk from 1 January 2018 onward, Public Transport Council made a decision to ask the Road Directorate to sign a new contract to ensure services are available in multiple Latvian cities, as confirmed by Road Directorate.

Iraqi forces retake disputed territories from Kurdish forces

Three weeks after the Iraqi Kurdistan independence referendum, forces of the Iraqi central government have taken control of the territories in the country, which had been seized by Kurdish fighters after victories over the terrorist group «Islamic State».

Sale of MTG’s business in Baltics to Providence concludes successfully

Wednesday, 18 October, marked the successful conclusion of the sale of Baltic assets owned by Swedish media concern Modern Times Group to Providence Equity Partners. From now on companies previously owned by MTG in Baltics will function as a single organization named All Media Baltics, as confirmed by the company’s manager Pierre Danon.

Estonian port company makes 29% more revenue in January-September

Estonian state port company Port of Tallinn has made the revenue in the amount of 99.1 million euros in the first nine months of 2017, which is a 29% increase compared to January-September in 2016.

42 gambling halls to be closed down in Riga in next five years

On Wednesday, 18 October, Riga City Council supported plans to close another 33 gambling halls in the city. With that, a total of 42 gambling halls will be liquidated in the next five year.

Latvia has the highest index of female CEOs among EU member states

The highest index of female CEOs among European Union member states belongs to Latvia – 47%. In total, only 33% of CEOs in EU were female last year, according to data from the Central Statistical Bureau of Latvia.

Survey: more and more people take notice of benefits provided by EU membership

65% of Latvian residents believe the country’s membership in the European Union has brought tangible benefits. A similar opinion was voiced by 64% of residents of all EU member states in the Eurobarometer study performed by the European Parliament.

17 persons in need of international aid are relocated to Latvia from Turkey

On Tuesday, 17 October, seventeen individuals, including nine children, in need of international protection were relocated to Latvia from Turkey as part of EU resettlement programme, as confirmed by Latvian Office of Citizenship and Migration Affairs.

BATL: to avoid crisis in transit sector, government and Transport Ministry must act

Latvian Prime Minister Māris Kučinskis’ led Latvian Ports, Transit and Logistics Council also supports Saeima’s National Economy Committee’s decision on the need for Transport Ministry to develop a long-term vision for the development of the country’s transit industry.

Psychologist: six-year-old children are not ready for school

«It is wrong to believe that the sooner a child starts going to school, the better their academic results will be. Reforms are performed aggressively, without asking pedagogues or other specialists for their opinion. We lack a comprehensive analysis of the current situation that would be based on studies, not international ratings,» says certified clinical psychologist and psychotherapist Jolanta Lamstere.

Klaipeda transport ticketing system to be installed by Estonian Ridango

In the Lithuanian port city of Klaipeda, Estonian firm Ridango has been selected for installing its technology on public transport.