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Monday 23.07.2018 | Name days: Magda, Magone, Mērija

Nordea: Latvian economy improving

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Nordea Bank Chief Economist Andris Strazds

The situation in the Latvian economy is gradually improving and the lowest point has already been overcome in the beginning of the year. The most rapid improvement has been observed exactly in foreign trade, however household consumption has also resumed to increase slightly, it was concluded in Nordea Bank report Economic Outlook.

It is expected that economic growth on quarterly bases will remain until the end of the year. Although, as compared with the previous year, there still will be a slight drop. While in 2011-2012 the recovery of domestic demand will contribute to a moderate increase in Gross Domestic Product (GDP).

«Latvia, as well as the neighboring states, has benefited from the economic recovery in the region and the whole world. Particular emphasis should be put on the productive economic development in significant export markets for Latvia as the Nordic states, Germany and Russia, as well as the gradual improvement of the situation in Estonia and Lithuania. The import growth has been moderate, therefore the overall trade balance is gradually improving and this contributes to the economic recovery. However, it should be taken into account that export is showing a «jump» from a very low position and further increases will already be more moderate,« explains Nordea Bank Chief Economist Andris Strazds.

He adds that net export forms more than a quarter of the Latvian economy. The remaining three-quarters are shaped by the production of goods and services to the local market.

«The good news is that several indicators point to a stabilization of domestic demand. The retail trade volume in this year’s second quarter, as compared with the first three months, has grown by 1.7%, while consumption prices show a slight increase already in the first half of the year. This also implies that households have slightly increased their expenditures. Most likely, more rapid growth in the economy does not take place due to the fact that new investment levels continue to shrink. Perhaps, the investors are deterred by demand development uncertainty and underloaded capacity. Possibly some of them are waiting for the outcome of the parliamentary elections in October,« emphasizes Strazds.

Currently the economy of Latvia is facing a certain paradox – the household balance in proportion against commercial banks, or the difference between domestic expenditures and domestic loans in the first half of this year has improved by 200 million lats.

«At the same time retail trade turnover shows an increase, as compared with last winter’s low level of it, as well as the prices have stopped falling. So the actual income of people has increased, even if it does not appear in wage and employment statistics. This increase can not be explained only by the last year’s detained pensions payment back this spring,« states Nordea Bank Chief Economist.


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