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Ceturtdiena 12.12.2019 | Name days: Otīlija, Iveta
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Finance Minister: second quarter growth – faster than forecast

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

Andris Vilks

The data released on Tuesday, August 9, on the gross domestic product (GDP) in the second quarter of 2011 show that the economy continues to recover successfully. Compared to the same quarter last year, the GDP has risen 5.3%, which is the fastest annual GDP growth since 2007.

It is good news that the second quarter growth was stronger than forecast, although it is tied to conservative projections for budget formulation. It is expected that the economic growth will continue in the third and fourth quarter as well. If the first half- year growth is about 4.5%, then it is likely that the GDP would near 5%, indicates Andris Vilks, Finance Minister.

From the Finance Ministry’s point of view, it is important that growth rates already now manifest in higher tax revenues, rising over 11% in the second quarter, compared to the same period last year. However, it was not only higher economic activity that boosted tax revenues but also tax policy changes.

In view of these positive data, it is already possible to say that when formulating the 2012 annual budget, the 2011 annual growth forecasts will be revised. However, it is still difficult to assess corrections for 2012. This year’s second quarter is very positive, and after a month it will most likely be confirmed by the compete data on GDP, which in addition will also allow assessing direction of the economic growth. Currently the available short-term indicators only cover part of the national economy and do not represent such essential sectors as construction and services.

Third quarter is expected to report as fast growth, however, future developments highly depend on global economic processes. Standard & Poor’s has cut the U.S. rating and the European Central Bank is set to buy Spain and Italy bonds. Insolvency issues still linger in the eurzone and the global recovery is slowing down. Consequently, financial markets’ response is quite sharp and shares have been plunging for the second week in a row, Vilks says.

Even if the very worst case scenario comes true, the autumn 2008 events are in no way to return to Latvia. Compared to back then, the Latvian economy is now much more protected against external turmoils, as its economic basis is more solid. Trade partners of Latvia also report stable growth and balanced fiscal situation, which comes as an additional security mechanism for Latvia. Growth is to remain strong in these countries also in future – Lithuanian GDP is up 6.1% in the second quarter versus the first one, while Swedish economy has expanded 5.3%.

These positive trends do not mean we can put an end to reforms that have already been started, because if the worst case scenario turns into reality, the global economy will barely be able to escape serious turmoil. Therefore, it is now very important to remain cautious with the economic outlook and go on with structural reforms to boost sustainability and competitiveness, Finance Minister adds.


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