Latvian GDP growth to "moderate", says European Commission

The European economy is forecast to continue expanding for the seventh year in a row in 2019, with real GDP expected to grow in all EU Member States, and while Latvia's economic growth will slow somewhat, it will remain among the better-performing economies in the bloc according to the European Commission's spring forecasts, released May 7.  

"In 2019, GDP growth [in Latvia] is expected to slow to 3.1% as investment growth comes down from the exceptionally high growth of the previous two years. The disbursement of EU funds will increase only slightly in 2019, leaving investment growth largely in the hands of the private sector. At the same time, private consumption is set to remain strong due to solid wage growth and enduring consumer optimism. With most of the decline in financial services exports now in the past, export growth is set to increase slightly in 2019," the Commission predicted.

Latvia recorded growth of 4.8% in 2018.

In 2020, GDP growth is expected to slow further to 2.8%. Private consumption growth is forecast to slow mildly as employment is expected to stall by 2020 ''due to supply constraints" - meaning that the available workforce will not be able to fill all vacancies.

"Employment growth is set to slow considerably over the forecast horizon as working age population continues falling and untapped labor supply becomes increasingly thin. At 6.9% in 2019 and 6.7% in 2020, the unemployment rate remains close to its record low of 6.1%, achieved in the previous boom in 2007. Wage growth is expected to maintain a steady pace due to the tight labor market... If wages continue to grow faster than productivity Latvia’s exports could underperform," the Commission warned.

The over-all picture is relatively stable however, with no unwelcome inflationary surprises expected. Inflation is forecast to increase slightly in 2019 to 2.8% but then to drop back to 2.4% in 2020. 

Latvia's Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said of the wider picture: “The European economy is showing resilience in the face of a less favorable external environment, including trade tensions. Growth is set to continue in all EU Member States and pick up next year, supported by robust domestic demand, steady employment gains and low financing costs. Yet risks to the outlook remain pronounced. On the external side, these include further escalation of trade conflicts and weakness in emerging markets, in particular China."

The full report on Latvia is available to read online.

 

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