Finance Ministry ups growth forecast for 2023

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Starting preparations for the 2024 state budget, the Ministry of Finance (FM) has updated its forecasts of macroeconomic indicators for 2023-2026. 

"Taking into account the faster-than-forecasted development of Latvia's economy at the end of last year and in the first quarter of this year, the gross domestic product growth forecast for this year has been raised to 1.0%. This is one percentage point more than the previous forecasts made at the beginning of February this year," said the FM. 

In 2024, economic growth is expected to accelerate to 2.5%, which is 0.5 percentage points more than was forecast in February, and in the subsequent two years – 2025 and 2026 – economic growth is forecast at 2.9%.

"Latvia's economy has overcome the problems caused by the war and the rise in energy prices, both last year and in the first half of this year, better than expected," said the ministry. 

"According to FM forecasts, the main provider of growth this year will be domestic demand, first of all investments, including significantly quicker use of funding from European Union funds, as well as the relatively stable level of private consumption, which will be promoted by price stabilization and in some sectors also a very rapid drop in prices, primarily for energy resources and fuel. On the other hand, external demand will remain weak," it said.

The FM has maintained the average annual inflation forecast for 2023 at 10.0% and 2.2% for 2024. In the next two years, the price increase is predicted to be 2.5% and 2.3%, respectively.

Taking into account the very rapid growth of the average salary in the first quarter of this year, the overall wage growth forecast for 2023 has been raised by 2.5 percentage points to 11%, and the wage growth forecast for 2024 - by one percentage point to 7.5%. The rate of wage growth is expected to slow in the coming years, approaching the rate of productivity growth and stabilizing at the 5% level.

The unemployment rate forecast for 2023 has been reduced by 0.6 percentage points to 6.5%. Unemployment could remain close to this level over the next three years, according to forecasts.

The forecasts of the Ministry of Finance are quite close to the forecasts published by the European Commission (EC) on May 15, which predict that Latvia's GDP will increase by 1.4% in 2023 and by 2.8% in 2024. At the same time, the EC also predicted a slightly slower increase in consumer prices for Latvia in 2023, with an annual average inflation of 9.3%.

Another set of macroeconomic predictions was recently provided by the IMF, as previously reported.

You can find a the FM's compehensive set of forecasts here:

FM forecasts, June 2023
FM forecasts, June 2023

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