Energy prices in Latvia could stabilize over 2-3 years, experts estimate

Although due to several factors of uncertainty, it is currently difficult to make accurate forecasts of when energy prices could stabilize, economists surveyed by Latvian Radio on August 10 estimated that this could take two to three years. 

Dainis Gašpuitis, an economist at SEB Bank, said that the price of gas hasn't yet reached a record and the critical moment will be December.

It could then be clear how effectively European countries will have managed to conserve and reduce gas consumption. There will be an opportunity to assess the size of Europe's gas stockpiles and Russia's actions, and balance between gas supply and demand.

“If everything works and weather conditions are favorable, meaning winter won't be cold, it will provide relief from the demand side. Then, perhaps we will be able to see some positive moves that prices are moving down anyway because the pressure and the moment of stress are disappearing. It is reasonable to expect prices to return to lower levels, but at what point we cannot really say at this time. And that is likely to be only in the next three years. Certainly, the price level will be higher than it was before the war,” Gašpuitis said.

The Latvian central bank's economist Erlands Krongorns said that the main influence on the price of energy resources is Russian aggression in Ukraine and, in the current situation, it is clear that gas prices will remain very high in the foreseeable future.

“But we already see the economy slowing down, and this is also reflected in oil prices. We see that, compared to some time earlier, oil prices have fallen significantly due to concerns about future demand. And similar trends could also appear in natural gas prices in the short term, but they will still be very high in the foreseeable future,” Krongorns said.

Citadele Bank economist Mārtiņš Āboliņš said that this year the average wage rise in Latvia is around seven percent, while the high inflation rate, which has exceeded the 20 percent mark, reduces purchasing power. This, in turn, means that the economy is facing challenges in the second half of the year.

"In the foreseeable future, inflation will certainly ease and wages should grow more rapidly again. The question is how quickly we will recover the loss of purchasing power. This is closely linked to what is happening in Europe's economy, the U.S., and, overall, the world economy. We see that there are quite a lot of signals about the approaching recession. Consequently, the economic situation this winter will be complicated, not only here, in Europe. Of course, if unemployment starts to rise at some point, then that payroll rise will brake. There are a lot of variables and scenarios at the moment: from slow growth to economic fall. What is going to happen is hard to say right now," said the bank economist.

Āboliņš said that the good news is that there are no signs of bad signs for Latvia's economy as a whole, the situation regarding the budget is good and the level of government debt is low. The main challenge is the rise in energy prices and the search for solutions to reduce cost increases.

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