Latvian central bank adjusts its economic forecasts

Latvijas Banka (LB), the Latvian central bank, published its latest macroeconomic forecasts June 19, noting at the outset they have been "drawn up amid persistently high uncertainty".

The gross domestic product (GDP) growth forecast for 2023 has been revised upwards to 1.2% (the March forecast was 0.5%) while GDP growth, compared to the March forecast, is revised downwards to 3.1% in 2024 (the March forecast was 3.7%). GDP growth forecast for 2025 is 3.5% (the March forecast stood at 3.3%). 

Latvia's inflation projections for 2023 and 2024 have been revised downwards to 8.5% and 2.4% respectively (the March 2023 projections were 10.0% and 2.7% respectively). For 2025, inflation has been revised slightly upwards – to 3.0% (the March projection – 2.6%). 

Latvian central bank inflation projections, June 2023
Latvian central bank inflation projections, June 2023

However, in addition to the already-noted "high uncertainty" involved in all economic crystal ball gazing  at the moment, the central bank adds that "The tight labour market increases risk that inflation will remain higher and growth – lower."

"At present, costs of energy and other resources are normalising; however, uncertainty prevailing in the region and the rising borrowing costs will weigh on investment growth. The role of European Union funds is increasing amid uncertainty; however, the implementation of projects has experienced delays so far," LB says.

"Demand forecasts in the main trade partners, particularly in Estonia and Lithuania, also hamper Latvia's economic growth," it adds.

The revisions come just a few days after the Ministry of Finance released its own revised economic forecasts, as previously reported by LSM.

Latvijas Banka June 2023 forecasts

 
       

2023

 

2024

 

2025

 

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

 

GDP

 

 

 

1.2

 

3.1

 

3.5

 

Private consumption

 

 

 

1.3

 

3.9

 

4.4

 

Government consumption

 

 

 

–4.4

 

–0.1

 

0.5

 

Investments

 

 

 

0.4

 

4.9

 

6.1

 

Exports

 

 

 

–0.1

 

3.0

 

3.1

 

Imports

 

 

 

–2.5

 

2.8

 

3.6

 

HICP inflation (annual changes; %) 

 

Inflation

 

 

 

8.5

 

2.4

 

3.0

 

Core inflation (excluding food and energy prices)

 

 

 

8.2

 

5.7

 

4.4

 

Labour market

 

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

 

 

 

6.7

 

6.4

 

6.4

 

Nominal gross wage (annual changes; %)

 

 

 

12.0

 

8.2

 

7.8

 

External sector 

 

Current account balance (% of GDP)

 

 

 

–3.4

 

–3.6

 

–4.3

 

Government finances (% of GDP)

 

General government debt

 

 

 

41.7

 

40.6

 

40.1

 

Budget surplus/deficit

 

 

 

–3.8

 

–2.9

 

–1.5

 

 

The forecasts were finalised on 31 May 2023. The cut-off date for some technical assumptions was the 23 May. More detailed information about the latest forecasts is available in the macroeconomic forecasts section of Latvijas Banka's website macroeconomics.lv.

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