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Monday 20.08.2018 | Name days: Bernhards, Boriss

Economists: GDP to hit 4% in 2011

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Last year’s data did not bring any major surprises, matching up with the previous forecasts. Moreover, it is expected that the economic growth will be ongoing also in 2011, when the GDP could grow even 4%, economists say.

Nordea banka senior economist Andris Strazds:

Looking at data over a longer period of time, we see that significant changes have taken place in the economic structure since 2007. The share in the total value added has declined significantly for such local market-oriented sectors as trade (from 19.8% to 16.4%), construction (from 9% to 5%) and financial intermediation (from 6.2% to 4.7% ). In three years, these sectors’ share in GDP has dropped by nearly nine percentage points. While, manufacturing (the share increased from 11.4% to 12.2%), transport and communications (from 10.2% to 12.5%), real estate, renting and other business activities (from 16.1% to 18.9%), as well as electricity, gas and water supply (from 2.5% to 4.1%) and agriculture (from 3.5% to 4.0%) have become relatively more important for the economy.

It is expected the moderate but positive trend will continue in 2011, with the economy growing about 3%. Latvia will be positively influenced by strong economic growth in the key export markets – the Nordic countries, Germany and Russia. Another important factor with positive effects will be increasing investments by at least 10 – 12%, compared to the low level in 2010. For instance, the available road sector funding in 2011 will climb about 100 million lats.

SEB banka economist Dainis Gašpuitis:

This year will see further economic development, characterized by inconsistent and fluctuating growth. The emphasis will remain on the export growth, determining the domestic consumption. Welcoming of guests will form the basis of tourism growth. Transit sector will depend on the political resourcefulness, while decisiveness will ensure long-term development. In terms of freight attraction, the competition is growing year by year. The financial sector will gradually report a increase, yet the situation will remain rather tense.

This year, major risks for growth have already emerged. They are state-implemented and not always adequately assessed budget consolidation measures, focusing on tax rise. This will flare up inflation and decrease purchasing power. The rapidly shifting changes in taxes reduce the much-needed predictability of investments in business development, as well as the job creation. Also, the interest rate climb and shocking energy resource prices could hamper the growth. Despite many external risks, the internal factors will still play a considerable role, particularly the government’s action predictability and quality consolidation measures. It is estimated this year’s GDP might hit 4%.

Swedbank senior economist Dainis Stikuts:

Private consumption is gradually recovering – in Q4 the annual growth formed 5.2%. However, it is still quite weak, as it is increasing at the expense of non-food products. During the crisis, consumption of such products was very low, now it is returning to a normal level. While food consumption is not increasing – probably because it is easier not to shop at retail chains, which, in turn, signals expanding shadow economy.

On the other hand, investments in fixed capital are not comforting as they form basis for future growth– in the Q4 of 2010 the annual decrease was 1.8%. Of course, the cold winter was not favourable for investing; however, these data suggest that Latvia’s economic potential is not rising, and the medium-term growth (and convergence to the average EU level) is likely to be rather slow. This year, GDP will keep climbing – we forecast it will grow by 4% over the year. The growth will depend on investments, which in turn will be affected by efficient EU fund acquisition. Unfortunately, last year’s fund acquisition was formal, and did not involve investments. Moreover, further tax rises and inflation will keep slowing down household consumption. Unfortunately, the consolidation measures do not promote faster economic growth.

Latvijas Krājbanka chief analyst Olga Ertuganova:

Hopefully, investment growth will be ongoing this year as well; otherwise it will barely be impossible to maintain a sharp increase in exports. Clearly, the year 2010 was exceptional, a number of economic indicators reported rapid improvements, having dropped considerably in 2008– 2009. Similarly, the kick-back effect will decline in exports as well. The economic situation in Europe remains shaky, local manufacturers start feeling qualified labour shortages, thus, export growth highly depends on additional investments in manufacturing.

Overall, the trends observed in late 2010 will prevail this year as well:  export and gradual recovery of the domestic market will continue to prop up the economic growth. Of course, several risk factors have to be considered – energy resource surcharge, rather sharp rise in prices of other goods and services, as well as the negative impact of tax burden, hindering the Latvian economic growth.

In early March, the European Central Bank’s (ECB) President made a surprising announcement that the very next month the ECB will, possibly, increase the euro base rate. It is likely that the euro rate rise will reduce Europe’s economic growth rate in 2011 significantly. Given the Latvian economy’s large dependence on exports, this time will be no exception. However, even including these factors’ impact on the GDP growth, there is great confidence the GDP will exceed 3% in 2011.

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  1. Piter Bull says:

    Economists always have a lot to say, but do they forecasts come true?

  2. Whoopie says:

    Who is stupid enought to beleive the so called economists are capable to predict the future.Reality is much more darker.

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