Euro Commission reins in growth forecast

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In revised forecasts released Tuesday, the European Commission said it expected the Latvian economy to grow by slightly less than 3 percent next year - significantly down on is previous forecast of 4.1%.

In the EC's view the economy will grow by 2.6% this year and 2.9% next with more robust 3.6% growth penciled in for 2016.

However, unemployment is expected to remain a problem, hovering persistently around the 10% mark (11% in 2014, 10.2% in 2015 and 9.2% in 2016).

"Economic growth in Latvia this year is slowing down, as developments between Russia and Ukraine have hurt business and consumer confidence. Slower growth will weaken the country’s fiscal position somewhat in 2014, but growth is forecast to pick up again in 2015 and 2016, although the economy will remain highly sensitive to external risks," the EC said in its accompanying notes. 

The economy will remain highly sensitive to external risks 

"Retail trade statistics point to some rebound in the third quarter 
of 2014 but the short-term growth outlook remains adversely affected by external risks and deteriorating business expectations. Growth is therefore projected to be relatively weak at 2.6% in 
2014 and 2.9% in 2015 as compared to 3.8% and 4.1% in the spring forecast," the EC said. 

"The Russian food embargo is expected to maintain some downward pressure on the Baltic market for a while. Nevertheless, 
Latvia’s inflation is forecast to rebound from 0.8% in 2014 to 1.8% in 2015 due to the forthcoming deregulation of household electricity prices at the beginning of 2015.

"A further upturn in consumer prices is forecast for 2016 when economic growth is expected to pick up. Non-tradable items, in particular services, are forecast to keep Latvia’s inflation above the EU average as incomes are also forecast to rise at a higher rate." 

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