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Ceturtdiena 13.12.2018 | Name days: Veldze, Lūcija
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Latvia ought to increase productivity to sustain predicted economic growth rate

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULatvia’s Fiscal Discipline Council has approved Finance Ministry’s macroeconomic outlook for 2018-2021. This document will be used by the government as the foundation for consultations with European Commission to establish next year’s budget estimates, BNN was informed by the council.

The council views the ministry’s macroeconomic outlook as realistic. Nevertheless, there are concerns about the economic growth potential – it could turn out weaker than the ministry expects. This means economic growth may become slower and there may be less money to spend.

«Currently Latvia’s economy is growing rapidly. Nevertheless, it is necessary to follow development of the situation very carefully to make sure this rapid growth does not cause an overheating,» says Fiscal Discipline Council’s Chairman Jānis Platais. «This trend would be undesirable, because it could cause macroeconomic instability and worsen the country’s financial state in a long-term perspective the same way we witnessed it during the economic crisis.»

Finance Ministry’s developed outlook for macroeconomic indexes for the period until 2021 shows that actual GDP growth will be 4% this year and close to 3% in the next couple of years. Inflation, on the other hand, may grow more rapidly than expected.

«The council points out that the ministry’s inflation outlook for 2019-2021 is rather cautious. This creates concerns about possible risks that threaten economic stability. These risks include possible market overheating – Latvia has a low unemployment level and lack of labour force, which creates pressure on wages and inflation. This is why in order to maintain Finance Ministry’s predicted economic growth, the council believes it is necessary to increase overall productivity,» said the council’s GDP group leader Mārtiņš Kazāks.

«If actual inflation turns out considerably higher than what is expected now, the council will ask the ministry to reduce potential GDP outlook and increase positive difference between potential and actual economic growth,» said Kazāks.

At the same time, the council reminds Finance Ministry of the previously voiced proposal to develop macroeconomic development scenario’s sensitivity analysis and include in it the following indexes – actual GDP growth, total budget revenue, budget balance and budget deficit.

The council has performed an assessment of the macroeconomic outlook for the period of time from 2004 onward. Finance Ministry is invited to commence regular assessment of macroeconomic outlooks to help improve the model and accuracy of used data in the future.

In accordance with the signed cooperation memorandum, the council provides an early approval of the ministry’s macroeconomic outlooks to support the government’s work on the document detailing stability programme for 2018-2021, as well as the next year’s and medium term budget.

Ref: 224.109.109.0941


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