Bank of Latvia cuts growth forecast for 2019 and 2020

The Bank of Latvia has lowered its gross domestic product (GDP) growth projection for this year from 2.9 percent to 2.5 percent, according to adjusted data, and the growth projection for 2020 from 3.1 percent to 2.6 percent, Bank of Latvia Governor Ilmārs Rimšēvičs told the press September 20.

"As the global and euro area economies slow down, Latvia's growth is also becoming slower. Exports are slowing down as the demand in Latvia's key partner countries weakens, and domestic demand is now playing a key role in sustaining the GDP growth," Rimšēvičs said.

Private consumption is currently the most stable component of domestic demand, while investment is now growing at a more moderate pace as companies are more cautious due to protracted geopolitical uncertainty, said Rimšēvičs.

In addition, Rimšēvičs also mentioned a downturn in the main export sector - manufacturing. Wood processing output is declining due to a number of factors, but the main one is declining external demand, particularly in the Scandinavian countries and, because of Brexit, in Great Britain. Positive trends in domestic demand are reflected in service sectors such as professional services, entertainment and recreation, accommodation, tourism and public catering.

"However, it is becoming increasingly clear that we are already over the peak of the economic cycle and economic growth is slowly starting to slow down," said Rimšēvičs. Because of this, GDP growth forecast for this year, which was 3.5 percent last December, was reduced to 2.9 percent this past June, and now to 2.5 percent, he explained.

The Bank of Latvia has also revised its economic growth forecast for 2020 - the Latvian economy is expected to grow by 2.6 percent next year, according to seasonally adjusted data, while the previous economic growth forecast for 2020 was 3.1 percent.

"This is a baseline scenario, but we have to keep in mind that, due to the global uncertainty, we need to be prepared for different scenarios. And while it looks like next year's budget is based on reasonably conservative growth projections, the fact that we have been forced to regularly lower future economic growth projections makes me cautious about the 2020 budget, as continued or even worsening external pressures mean that the current 2020 growth projections may also need to be revised downward," said the Bank of Latvia governor.

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