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Sunday 23.09.2018 | Name days: Vanda, Veneranda, Venija
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Economist: Estonia and Lithuania outpace Latvia in boosting standard of living

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 Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU, Martins Kazaks

Swedbank chief economist Martins Kazaks

Compared to other Baltic States, Latvia is lagging behind in terms of boosting the population’s standard of living. Moreover, this is not the only less successful quarter for Latvia – also last year the average quarterly growth rate in Estonia and Lithuania was faster than in Latvia, indicates Mārtiņš Kazāks (Kazaks) chief economist at Swedbank.

If compared to the corresponding period last year, Estonia’s GDP grew 8% in the first quarter of 2011 (2.1% against the previous quarter, seasonally adjusted data), Lithuania’s GDP – 6.9% (3.5%), while Latvia’s GDP – only 3.4% (0.2%).

Although currently only one GDP figure is known and a more detailed division will be published only after a month, the data spur certain thoughts, the economist points out.

Firstly, the current, relatively-rapid growth is partly due to a rebound effect – during the crisis the activity decreased too rapidly. Rises and falls are only natural. For instance, in order to cut costs, companies’ stocks were reduced to critically-low levels, because it was not clear how deep the recession would be.

Now, when the downturn has ended, there is a need to rebuild stocks, which would lead to more rapid, but temporary, economic activity. After the rebound effect is over, the economy will grow only based on its strength and quality – companies’ ability to export and invest, as well as households’ capacity to consume. If the economy is fundamentally weak, with the rebound effect weakening the GDP, growth rates will drop as well, Kazaks recognizes.

Secondly, along with slower economic growth rates, new job creation will become more sluggish. This will limit the state budget’s capacity to consolidate in a more favourable way for businesses and residents – through growth, not spending cuts and tax increases.

What conclusions should be made by the economic policy makers – politicians and public officials? The necessity for structural reforms has not vanished, despite the fact that so far the economic recovery has been faster than initially projected. The hesitation to implement quality structural reforms (tax policy, shadow economy, education, etc.) means lost time, slower economic growth, fewer job openings and better-paid jobs, higher emigration, lower pensions, less money for health care and education. There are still no feelings of a well-done work. It must be continued, because the rest is not earned yet, Kazaks says.

 


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