bnn.lv Latviski   bnn-news.com English   bnn-news.ru По-русски
Monday 24.09.2018 | Name days: Agris, Agrita
LatviaLatvia

Economists: Latvian households can afford to spend more money

FaceBook
Twitter
Draugiem
print
(No Ratings Yet)

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe global economy continues growing. In addition, the role of developed economies becomes bigger as well. It is good news for Latvian exporters, because the new export markets are well-known and predictable for them. Interest rates do not become smaller, but they will remain low for a long time, so now is the best time for companies to invest, as concluded in the latest Swedbank economic outlook.

Global economic growth will be weaker than expected in 2015. It will be mostly affected by short-term weakness of the economy in the United States of America at the beginning of the year. It is expected that global economic growth will become stronger in 2016 and 2017. There are good conditions for a more rapid economic growth in USA the situation on the labour market is slowly improving, the level of optimism exhibited by consumers and companies is good and promises growth in consumption and investment activity. Even in Eurozone the largest fiscal consolidation measures are over and monetary stimulation activities are becoming wider. The situation in Nordic countries varies – growth in Sweden and Denmark is becoming stronger. Norway, on the other hand, is affected by a rapid decline of oil prices. Events in Russia are currently slowing Finland’s economic growth. The largest concerns apply to developing markets – the decline in Brazil’s economy is not expected to end soon. Large risks remain in China and India. Russia’s economic recession is becoming deeper and its very weak growth could appear in the middle of 2016. The upcoming interest rate increase by the U.S. Federal Reserve will strengthen the U.S. dollar, which, in conjunction with China’s recent devaluation could negatively affect already unstable balances of developing markets, as mentioned in the outlook.

A truly hot summer continues in Greece – the country has seen a dead end in talks with creditors, a crisis in its banking sector and capital control, a referendum and default against IMF. The agreement on the next bailout plan was nonetheless achieved, debts were paid, new loans accepted. And now the country faces new elections. This story will not end soon. Any possible outcome provides for the write-off of some of Greece’s debts – it is the cost for geopolitical safety in EU’s south. A drama, but only for Greece – financial markets see it more and more as an isolated case. It is not expected that problems of this country will affect economic growth in Eurozone, experts say.

Swedbank economists increase Latvia’s GDP growth forecast for 2015 from 1.9% to 2.1%. This is because of a surprisingly strong second quarter of the year. It seems growth in the first half of the year was also more rapid than expected, because exports and investments were more powerful and capable of compensating more careful rise of households’ consumption rates. Growth may yet decline in the second half of the year because of weak external demand and possible obstacles from Russia in regard to railway cargo transport, economists say.

Economic growth is expected to be more rapid in 2016 and 2017. It seems that 3% is Latvia’s new reality – without massive structural reforms and/or much higher external demand, the country can forget about sustainable 4-5% growth. It is expected that because of global economic and European growth, export and investment growth will become more rapid and secure. Household consumption growth will remain relative strong – more cautious this year and somewhat stronger in 2016-2017. At the same time, it is worth mentioning that economic growth may be even slower – the main risks are external (Russia and Eurozone), economists say.

Up until now, exporters have been exceeding expectations by successfully reorienting their activities from crumbling CIS markets to others. However, development is uneven and fluctuating among industries. More capable growth in developed countries is good news, because these markets are familiar to Latvian entrepreneurs and relatively predictable. Households’ demand growth in Latvia is relatively stable. It is important to consider political risks in Russia.

Considering the expected rise in demand, currently low interest rates and high workload in many industries it is time to invest. New loan services are on a rise, and this activity is expected to become even more active. If companies do not invest now, their European competitors will end up in the lead, because investment and loan activity there is already on a rise. Considering rising labour costs and the declining number of residents of working age, investments in machinery and digital solutions are necessary to reduce dependence on labour force. Investments to increase capacity as just as important. Otherwise it will be much harder and more complicated to expand export volumes, Swedbank experts add.

Income of households continues to grow, mostly because of rising wages. It is expected that average wages will grow around 6% annually. Swedbank economists predict PIT will not be reduced in 2016, and minimum wages will be increased only by EUR 20. Creation of new jobs will be slow. Decline of prices for raw materials and its influence on prices of fuel, gas, heating energy and food products will maintain price rise at an insignificant (0.5% on average) level and a moderate 2% in 2016 and 2.3% in 2017. Prices of certain services may grow slightly faster.

In general, households can afford to spend more money. Deposits have grown. Households now more often pay back current loans than take on new debts. Low interest rates are beneficial for loan takers.

As for what all this could mean for the government, economists say State Revenue Service’s administered tax revenue has grown by 5%. Finance Ministry finally admits that revenue will be lower than expected and budget deficit will be higher than the amount stated in 2015 Budget Law – economists had previously warned about this. This means negative fiscal space in 2016. It is likely PIT will not be reduced next year; tax increase will be lower and shadow economy combating measures will continue as well. But there is no need to over-dramatize the situation. There is a lot of space for manoeuvring there. However, it is worth mentioning yet again that without a far-sighted and brave strategy for either reducing or increasing income, the government will continue facing regular shortage of funds for its priorities, experts say.

Ref: 102.109.109.5793


Leave a reply

Week in Lithuania. President proposes amendments to restrict bailiffs' remuneration

Lithuanian President Dalia Grybauskaitė is putting forward amendments aimed at restricting bailiffs' financial remuneration to up to 15 per cent of the amount recovered.

BNN summary of the week: pre-election heat, rule of law in Latvia, Baltics prepare for Pope’s visit

BNN offers a summary of this week’s topical news in a variety of categories: Elections; Change; Stagnation; Fight; Visit; Investigation.

Court reschedules viewing of criminal case due to Non-citizens Congress leader’s poor health

Riga City Vidzeme Suburb Court announced today that the viewing of the criminal case in which leader of Non-citizens Congress Aleksandrs Gapoņenko is accused of inciting national hate will be postponed to a later date.

Producer prices in industry up 1.0% in Latvia in August

Compared to July, level of producer prices in the Latvian industry rose by 1.0 % in August 2018. Level of prices of products sold on the domestic market grew by 1.9 %, but of exported products – went up by 0.1 %.

Bishop: priest suspected of sexual abuse to be operated on in hospital

Pāvels Zeiļa, who is a priest of Rezekne Aglona diocese and the suspect in the criminal case regarding sexual violence and human trafficking, will undergo a complicated surgery on Friday, 21 September, as reported by Bishop Jānis Bulis.

Study: residents withdraw money from ATMs less often but in larger amounts

Every now and then discussions about dropping cash money altogether become active in society, AS PrivatBank representatives say.

HND Grupa design company, involved in Zolitude tragery, declared insolvent

Building engineer Ivars Sergets company HND Grupa, which was involved in the case revolving around the Maxima supermarket that collapsed in Zolitude, killing 54, not five years ago, has been declared insolvent, as reported by Latvijas Avīze.

Deputy Chief of State Fire and Rescue Service suspected of misappropriation

Latvia’s Interior Affairs Ministry’s Internal Security Bureau has detained deputy chief of State Fire and Rescue Service Ints Sēlis and one other official – a senior inspector, as reported by Panorāma programme of LTV.

Washington sanctions China for buying Russian military equipment

U.S. government has introduces sanctions against the Chinese army over a purchase of fighter jets and missile systems from Russia, despite a U.S. sanctions law targeting Moscow for attempts to sway in the 2016 U.S. election.

Autumn expected to begin soon in Latvia

Friday, 21 September, is expected to be warm in Latvia. Sun and considerable amount of clouds are expected, but not precipitation. Wind will draw in from the south, reaching a speed of 15-17 m/sec in western and central regions, as reported by Latvia’s Environment, Geology and Meteorology Centre.

Brexit: a finish line with no end in sight

Less than 200 days are left before Britain officially leaves the European Union. The state of the agreement between Britain and EU only serves to create more chaos, from which neither Britain nor EU, or even Latvia will benefit.

EU underlines to London: No-deal Brexit also option

European Union's top officials and member state leaders planned to push for a Brexit deal in October, while urging London to give ground on the issues trade and the Irish border by November, to avoid a no-deal Brexit.

Lithuanian PM, a presumable presidential hopeful, set to curb grocery price growth

Having chastised food retailers on many occasions for high grocery prices, Saulius Skvernelis, the Lithuanian Prime Minister, stepped forward in the bid to harness local supermarkets. The presumed presidential candidate of the ruling Farmers and Greens (LVŽS) has summoned this week executives of major retail food chains, scolded them and reaffirmed his pledge to rein in the edging up prices.

Industrial prices in Estonia – up by 3.4% on year

The industrial price index in Estonia has risen from August 2017 to August this year by 3.4%, official statistics show.

Latvian parliament approves transition to competence-based approach in education content

On Thursday, 20 September, Latvia’s Saeima approved in the final reading amendments to the Education Law, necessary for the gradual introduction of competence-based approach in education materials.

Latvian Saeima wants to disallow shareholders to work in company management board

On Thursday, 20 September, Saeima approved in the first reading amendments to the Credit Institutions Law that provide for multiple measures to enhance Latvia’s finance system and its long-term stability, as reported by the parliament’s press-service.

Aglone Council prohibits residents from organizing protests during Pope Francis’ visit

A protest against the Catholic Church’s ban on abortions and expression of shock in relation to the recent sex scandals involving Catholic priests was planned to take place in Aglone during Pope Francis’ visit, but the city council decided to disallow them.

Latvian parliament conceptual supports pension bonus indexation

On Thursday, 20 September, Saeima supported in the first reading several initiatives for a more rapid pension climb for several groups of pensioners, as reported by Saeima press-service.

Majority Saeima deputies support open president vote; UGF members fail to decide unanimously

On Thursday, 20 September, amendments to the Constitution regarding open election of the state president were approved in the second reading.

Four Estonian parties have strong support, enough to enter Riigikogu

Four Estonian parties are believed to currently have enough support to enter the Estonian parliament, a broad opinion poll showed, as leading parties compete for voter backing.

Vitol Group concerned over state of rule of law in Latvia; turns to state officials

One of the largest energy resource traders in the world – Vitol Group – has sent a letter to Latvia’s highest ranking officials, expressing deep concern over the rule of law and application of legislative acts in the litigation between LatRosTrans and Polocktransneft Druzba over the EUR 66 million worth technological oil.

As Pope heads to Baltics, more attention to Catholic sex abuse

The time, when Roman Catholic Pope Francis is set to visit the Baltics, greatly differs from the visit by Saint John Paul II in 1993. There is public resentment over the countries spending several million euros to host the trip of the pontiff and the Catholic sex abuse scandals are topic of discussion.

Officials asked to take responsibility for misuse of state resources

If misuse of state resources takes place, officials have to take responsibility and pay for the damages caused to the state, says Public Expenditure and Audit Committee chairman Andris Bērziņš.

May asks EU not to divide Britain, while Brussels waits for UK change of position

At a European Union summit in Austria, UK's Prime Minister Theresa May called on EU leaders leave behind "unacceptable" Brexit demands that according to her may rip Britain apart.

Saeima decides to divide EUR 8.3 million of healthcare budget funds to finance reforms

Saeima’s Budget and Finance Committee has supported the initiative to divide EUR 8.277 million from the planned chronic patient care funding to further finance reforms in the country’s healthcare system.

Newest comments