Latvian Finance Ministry expects 3.2% growth this year, 3.0% next year

The Latvian Finance Ministry said February 14 it expects to see economic growth of 3.2% in 2019 and 3.0% in 2020. After that, growth rates are likely to tail off further to around 2.9% in both 2021 and 2022, the Ministry said in drawing up its Latvian Stability Program for 2019-2022.

"Taking into account the rapid growth of the economy in 2018, which, according to preliminary data, reached 4.8% and exceeded the forecast by 0.6 percentage points, the GDP growth forecast for 2019 is increased by 0.2 percentage points," compared to the previous forecast in September. 

"The rapid growth of the economy was determined by the rapid increase of investment activity in the course of the year, as the flow of EU funds, which ensured the growth of the construction sector, as well as the unexpectedly successful development of the transport sector and strong growth in other service sectors, including information and communication services."

But in 2019, "growth rates of the Latvian economy will become more moderate" the Ministry said, with private consumption the main driver of economic growth. A slowing global economy will inevitably drag back Latvian growth too.

Good news is that unemployment is set to fall further.

"Strong economic growth will also lead to a faster decline in unemployment - according to the latest FM forecasts, the unemployment rate will drop to 7.0% in 2019, compared with 7.4% in 2018 provisionally. Compared to previous forecasts, the unemployment rate forecast for 2019 has been reduced by 0.4 percentage points and by 2020 by 0.5 percentage points," the Ministry said.

Consumer price growth in Latvia in 2019 is expected to remain at the previous year's level and will be 2.5% over the year according to the FM forecasts. In 2020, inflation will fall to 2.2% and projections for 2019 and 2020 have remained unchanged, and overall, inflation is expected to fall to 2.0% by 2022.

The forecasts are "based on conservative assumptions" regarding external and internal risks, of which there are a large number at present including rising protectionist trends in the world, uncertainty about the process of British withdrawal from the European Union, a significant slowdown in economic growth in Germany and an increase in financial risks in Italy.

"From internal risks, the growth of the Latvian economy may be adversely affected by the decline in the working age population and insufficient investment in manufacturing sectors, potentially weakening the economic growth rate," the Ministry warned. The financial services and transit sectors might also fail to match 2018's performance figures, it added.

The full list of projections is available (in Latvian) at the Finance Ministry website.

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