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Monday 16.07.2018 | Name days: Hermīne, Estere

Economic Diary of Latvia. Dreams come true: residents’ income grows and prices do not

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUIn Q3 2014, gross salaries in Latvia reached EUR 775, which is 7.4% larger than last year’s index, as reported by Latvian Economy Ministry.

Salary growth was provided by the improvement of the economic situation and the growth of minimal wages at the beginning of the year. Changes to tax legislation also played a major role in this.

Compared to 2013, when wage growth was largely moderate in the private and public sectors, this year’s wage increase was more rapid in the private sector and was 8.5% in Q3 2014.

Analysts say there is a wage rise in all main industrial sectors of Latvia’s economy. Income has been increasing rapidly in areas of professional, scientific and technical services, construction, administration, agriculture and forestry.

Wages have increase by 7.9% in Latvia’s processing industry in Q3 2014. It nonetheless remains 9% below the average level in the country. The best dynamics in this segment has been noted with producers of electronic and optical devices (+14.8%), furniture producers (+14.3%), manufacturers of fabricated metal products (12.2%) and food product manufacturers (+10.4%). On the other hand, salaries of workers of textile industry and drinks producers have reduced.

Entrepreneurs lie in wait

Another optimistic piece of information has been reported by Finance Ministry: Latvia’s GDP has grown 2.5% in Q3 2014 in comparison with the same period of 2013.

The largest growth has been noted in commercial trade and services, which accounts for half of the registered GDP growth. A decline in production volumes has been noted in forestry (-5.9%) and processing industry (-0.6%).

In general, the situation in Latvia’s national economy remains the same as it was in the first half-year – export potential is being limited on foreign markets and demand in the country grows moderately.

In particular, the total export volume remained the same in Q3 2014 as it was in the same period of 2013. Nevertheless, exports of goods have grown 3.2% and exports of services have reduced 6.4%. At the same time, private consumption has become somewhat slower in Latvia – it has increased only 2.1% during this period.

Because of the emerging uncertainty in foreign markets, entrepreneurs lie in wait. This has forced investments to reduce by nearly 2%.

According to estimates of Economy Ministry, Latvia’s GDP growth will be 2.5% at the end of 2014. GDP growth is expected to reach 2.5% – 3% in 2015.

Fuel to become cheaper

According to latest price monitoring data compiled by Economy Ministry, the price level in the country remained more or less the same in 85.9% of cases in November. Price growth has been noted in 5% of cases and price reductions in 9.1% of cases.

Fuel prices declined by 4%-7% in November. Meanwhile, oil continued to become cheaper in the world; within one month the price had declined by 15%.

The International Monetary Fund believes the decline of oil prices has a positive effect on global economy. This week, Christine Lagarde announced that the 30% decline of prices on crude oil could lead to additional economic growth 0.8% in the majority of industrially-developed countries, because they are the ones who import oil the most.

Principle to be made an option

The Latvian government has approved the decision to put off the introduction of amendments to the Insolvency Law until March 1st, 2015. These amendments provide for the application of the principle of handing over keys.

Legislators plan to change regulations and allow mortgage borrowers and creditors to apply this mechanism not as a mandatory measure, but as a voluntary option agreed upon by both sides.

It was initially planned that this principle would be introduced on January 1st, 2015. However, it was met with protests from banks. Creditors noted that this would lead to more expensive loans, which would in turn make housing loans less available for young families.

Foreign analysts see stability in Latvia

At the end of last week, Standard & Poor’s decided to maintain Latvia’s long-term rating at A- and the country’s short-term rating at A-2 with a stable outlook, as reported by State Treasury of Latvia.

The agency believes Latvia’s GDP growth will remain at 3.5% for the next several years. Analysts have praised the impressive deficit decline (from 9% in 2009 to 0.9% in 2013) and the continuously declining state debt, which is expected to reduce to 30% by 2017. Among Latvia’s strong sides, the agency sees fiscal discipline and effective state administration. S&P expect that Latvia will conclude 2014 with GDP growth of 2.4%. Latvia’s GDP growth of 2015 is expected to reach 3.5%.


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