Even before Russia's invasion of Ukraine, energy prices were rising and inflation had become higher. The war has dramatically worsened this situation. The problem is the high prices of energy resources and their fluctuation.
“The longer the war, the broader the sanctions. Consequently, much higher energy prices in the short term (…). At the present moment, it is not possible to highlight precise figures for inflation. Unfortunately we will slip into two-digit figures,” Kazāks said.
The impact of Russia's war in Ukraine will be seen on both energy and food prices as Ukraine is a major supplier of grain on the world market. Longer and higher inflation will also have an impact on economic growth as people consume less. Similarly, general insecurity could affect companies' willingness to invest.
At the same time, the head of the Bank of Latvia stressed that Latvia is in a more secure and economically secure situation than ever before: “We are in the European Union, which means access to the European market, various support mechanisms. We are part of NATO, which means geopolitical security guarantees. And we're part of the eurozone, which means relatively cheap funding. Consequently, yes, the economy will slow down, [because] war is war. But at this point, it is not worth outlining apocalyptic scenarios. And the crisis will be more a slow-down than a deep fall,” Kazāks said.
He forecast that price hikes will grow slower in the second half of the year.
Asked about the competitiveness of energy-intensive companies, Kazāks said that the situation is similar throughout Europe. Consequently, the ability to work effectively will be crucial.
