"The short-term forecasts for Latvia's GDP growth and inflation have been revised downwards," the central bank explained, adding:
"Latvia's economic growth is projected to be sluggish this year due to weak demand from Latvia's main trade partners. The low inflation facilitates recovery of consumption and the government investment fuels overall investment growth in Latvia, whereas external demand has weakened. Consequently, the short-term GDP growth forecast for 2024 has been revised to 1.8%, down from 2.0% projected in the December 2023 forecast."
The GDP growth forecasts for 2025 and 2026 remain unchanged compared with the December forecasts – at 3.6 % and 3.8 % respectively.
The short-term inflation forecast has been revised slightly downwards due to lower global gas prices. As a result, the March forecast of Latvia's average inflation predicts 1.5% for 2024 (2.0% in the December 2023 forecast), 1.9% for 2025 (2.3% in the December 2023 forecast) and 1.8% for 2026 (unchanged from the December 2023 forecast).
"Over the medium term, the persistent rise in wages will further influence inflation, preventing the core inflation (inflation excluding energy and food prices) from decreasing as rapidly as the headline inflation. Rising labor costs present risks to Latvia's economic growth and the resilience of competitiveness," the central bank warned, adding the caveat that "Latvijas Banka's latest economic forecasts have been drawn up amid persistently high uncertainty."
The latest downgrades of LB's forecasts comes after a similar move in December.
|
Latvijas Banka's forecasts |
||||
|
2024 |
2025 |
2026 |
||
|
Economic activity (annual changes; %; at constant prices; seasonally adjusted data) |
||||
|
GDP |
|
1.8 |
3.6 |
3.8 |
|
Private consumption |
|
2.8 |
4.0 |
3.6 |
|
Government consumption |
|
3.7 |
1.0 |
0.0 |
|
Investment |
|
5.5 |
4.4 |
5.2 |
|
Exports |
|
–0.2 |
3.3 |
3.5 |
|
Imports |
|
0.8 |
3.2 |
2.7 |
|
HICP inflation (annual changes; %) |
||||
|
Inflation |
|
1.5 |
1.9 |
1.8 |
|
Core inflation (excluding food and energy prices) |
|
4.0 |
3.6 |
2.9 |
|
Labour market |
||||
|
Unemployment (% of the economically active population; seasonally adjusted data) |
|
6.5 |
6.3 |
6.1 |
|
Nominal gross wage (annual changes; %) |
|
8.0 |
7.9 |
7.6 |
|
External sector |
||||
|
Current account balance (% of GDP) |
|
–4.3 |
–4.3 |
–3.8 |
|
Government finances (% of GDP) |
||||
|
General government debt |
|
44.3 |
45.2 |
45.7 |
|
Budget surplus/deficit |
|
–4.1 |
–3.4 |
–2.3 |
