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Tuesday 07.04.2020 | Name days: Helmuts, Zina, Zinaīda

Kazāks: there are no reasons to expect a crisis as serious as the one in 2008

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Bank of Latvia, Mārtiņš Kazāks, economic growth, grey economy, reformsThe growth of both the global and Latvian economy is slow, but this does not mean an economic decline is expected. On top of that, there are no reasons to expect an economic crisis as serious as the last one, said Bank of Latvia governor Mārtiņš Kazāks.

«The kind of growth we had seen a year or two years ago (close to 5%) is unlikely. If we compare this to seasons of the year, summer is definitely over, but this does not mean winter is about to begin! And we shouldn’t expect a harsh winter every time. Yes, we can see the most rapid growth period for Latvia’s economy is over. However, the economy continues growing regardless – the pace is slower, but growth continues!» stresses Kazāks.

He also noted that there is no major imbalance in Latvia’s economy, nor are there any loan bubbles as observed in the previous crisis. This means the main risks for Latvia’s economic growth are global.

«If the global economy continues growing, Latvia’s economy will likely follow. But if the global economy enters a recession – and there will be a recession one day – it will also pull Latvia with it,» explains Kazāks.

«However, as I’ve mentioned, there are no major imbalances in Latvia, this is why there are no reasons to fear the crisis could turn out as bad as 2008 and 2009. There are simply no reasons for that,» said Kazāks.

He stressed that the main domestic risks are found in Latvia’s finance sector.

«These risks are associated with money laundering and sanctions. We have to deal with these issues. The good news is that we can manage and resolve these risks. Latvia cannot control how the global economy develops, we can only adapt to the process. As for aforementioned domestic risks, in many cases the situation is in our hands. We should deal with these issues as soon as possible, while the economy continues to grow,» said the governor of the central bank.

He also said Latvia must not postpone structural reforms, because they represent the only way to progress towards the average quality of life level in the EU.

«It is not possible to simply enter wealth. Currently income in Latvia is slightly above 70% of average income in the EU. Reaching 100% remains our country’s far-away objective. For us to reach the average EU level of wealth there is nothing else left for us than to adopt all structural reforms. The sooner we do this, the better off we will be. This applies to both grey economy reduction and labour market efficiency and skill increase, as well as healthcare, education and territorial reforms. Without reforms, we will never reach the average level of wealth in the EU here in Latvia. There needs to be thoughtful and persistent work,» stresses Kazāks.

Read also: Latvia is doing everything to avoid getting grey-listed, says Kazāks

«For example, there is the grey economy. We shouldn’t live in an illusion that grey economy can be wiped out completely. There are grey economy sectors in every country. But what we see in Latvia is that grey economy slows and steals away growth opportunities. Even the current problems in the finance sector slow Latvia’s growth. We have to deal with these issues! Only we can do this and it is only in our best interest to do. No one will do it for us. The past year in the finance sector proves as much that if needed, we can tidy up well,» adds Kazāks.

As previously reported, the Bank of Latvia reduced GDP outlook for 2019 from 2.5% to 2.3% in December 2019. Economic growth outlook for 2020 was preserved at 2.6%.

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