Latvian Central Bank Slows Down Economic Forecast / Article

Latvia’s GDP growth projections for 2021 and 2022 have both been revised downwards to 4.6% and 4.2% respectively (from 5.3% and 5.1% in September 2021), reflecting the economic fallout from the pandemic. Projected GDP growth for 2023 remains unchanged at 4.0%.

At the same time, the inflation projections for 2021 and 2022 have been revised significantly upwards to 3.2% and 6.1% respectively (compared to 2.8% and 4.0% in the September 2021 forecast) in light soaring world energy prices.

An upward revision of the inflation projections for 2023 to 2.9% was driven by an increase in production costs.

“Latvia’s economic growth slowed towards the start of the year due to the deteriorating epidemiological situation, as already predicted in our September forecast. Additional factors, however, were the lockdown imposed and restrictions tightened “said LB.

“Although private consumption recovered in the third quarter, an increase in spending by travelers abroad is observed, without contributing to Latvia’s economic growth. The prices of building materials and equipment have increased more than expected. in investment plans, thus hampering investment activity. Restrictions on the provision of services exert continued downward pressure on exports. “

“The economic effects of the pandemic will continue to be felt early next year as well. Considering the tight labor market, an additional negative factor will be the requirement to have a Covid-19 certificate for workers on site, as well as the deterioration of the epidemiological situation and restrictions in Europe. “

The central bank expressed hope that the surge in energy prices and supply disruptions will fade significantly in the second half of 2022 and that the material shortages faced by Latvian companies will not be overwhelmed. not as acute as in other European countries.

Macroeconomic indicators: Latvijas Banka projections

2021

2022

2023

2024

Economic activity (annual percentage changes; at constant prices; seasonally adjusted data)

GDP

4.6

4.2

4.0

3.3

Private consumption

5.7

8.6

5.4

4.3

Public consumption

7.9

3.9

0.5

0.7

Investment

4.3

7.0

4.1

3.6

Exports

5.4

4.5

5.0

3.2

Imports

12.6

2.7

3.3

3.4

HICP inflation (annual percentage changes)

Inflation

3.2

6.1

2.9

2.1

Core inflation (excluding food and energy)

2.0

3.1

2.6

2.3

Labor market

Unemployment (% of economically active population; seasonally adjusted data)

7.8

7.5

6.8

6.6

Nominal gross salary (annual percentage changes)

8.9

7.5

6.1

5.9

External sector

Current account balance (% of GDP)

–2.8

–1.8

–0.9

–1.1

Public finances (% of GDP)

General government debt

47.1

49.7

47.1

44.6

Budget surplus / deficit

–8.2

–4.1

–1.3

–0.4

Core inflation is expected to rise, largely due to rising wages.

“However, the short-term risks to the inflation projections remain on the upside. This is determined by the tight domestic labor market and a subsequent expected decline in global commodity prices,” LB warned.

“Unemployment is doomed to increase due to those who refuse to vaccinate, as there is an obligation to have a valid Covid-19 certificate for workers on site … The decreasing availability of labor reinforces pressure on wages. Salary Growth projections for 2023 have been revised upwards to reflect labor shortages and the planned reform of the public administration remuneration system, ”said LB.

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