Luminor bank forecasts GDP decline for 2023 in Latvia

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Luminor Bank forecasts a 0.5% decline in gross domestic product (GDP) next year, the bank economist Pēteris Strautiņš said in a presentation of the forecasts for Latvia and the Baltic economy, LETA reported on September 13.

Strautiņš said that these forecasts are more pessimistic than other institutions and they may not be fulfilled.

This year, Luminor Bank forecasts GDP growth of 2.7% and GDP growth of 4.6% in 2024. According to the bank, annual average inflation in Latvia will be 17% this year, next year at 7.8%, while in 2024 the bank forecasts deflation or a fall in consumer prices of 2.1%.

Similarly, Luminor Bank forecasts an unemployment rate of 6.9% in Latvia this year, 8% next year and in 2024. Wage increases are forecast by Luminor Bank at 7.8% this year, 9.4% next year, and 8.7% in 2024.

Strautiņš said Latvia's economy is facing huge challenges now - real wages will fall for the first time since the global economic crisis of 2008-2009. The difficulties have been compounded by rising energy prices and other events related to the Russian attack on Ukraine. However, by creating more energy-efficient and sustainable solutions and by changing primary energy sources and outlets, the challenges of this moment can make the economy more robust. After successfully overcoming difficulties and reducing inflation, rapid growth can follow, Strautiņš forecast.

At the moment, purchasing power is declining because high energy import prices are a big tax on the economy, Strautiņš said. However, in the economist's view, these prices will drop sooner or later, and at that point, Latvians will have learned to use energy more sparingly.

"The ongoing price spurt will be followed by a downturn in energy prices, which will be strong enough to lead to a decline in overall price levels. There will be a period when wages continue to grow, but prices will fall. The damage to prosperity caused by energy prices is strong but passing," Strautiņš said.

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