OECD cuts Latvia's growth forecast

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The Organization for Economic Co-operation and Development (OECD) in its latest Global Economic Outlook has estimated the Latvian gross domestic product (GDP) growth in 2016 at 1.9%, against the previous forecast of a 3.1% growth.

The OECD expects the Latvian economy to grow 3.5% in 2017.

Among the Baltic states, Lithuania is likely to show the steepest growth this year at 2.8% whereas the Estonian economy will grow 1.8%. Latvia will be the fastest growing of the Baltic economies in 2017 when the Lithuanian GDP growth is estimated at 3.4% and the Estonian GDP might grow 3%.

According to the summary of the OECD economic forecasts for Latvia, the Latvian economy is projected to recover from the temporary weakness in the last quarter of 2015 and first quarter of 2016 related to the expiry of EU funds and the sharp decline of economic relations with Russia.

“Strong wage growth underpins solid spending by private households. Uncertainty is holding back investment, but this will be gradually overcome once the recovery of the euro area generates healthier export markets,” the OECD said.

“The accommodative monetary conditions provided by the European Central Bank (ECB) will make it easier for investment to recover, which is important for continuing Latvia’s catch-up to the higher incomes of the Nordic region. Fiscal policy is on track to achieve its targets. Structural policies need to prioritise measures which increase productivity and improve social cohesion,” the report says.

The OECD noted that productivity would be crucial in the catch-up process. Policies need to continue improving the business environment and strengthening the capacity of the vocational education system to provide graduates with employable and internationally competitive skills. Stepping up tax collection will widen the fiscal room to finance growth-enhancing structural reforms and reduce taxes on low wages.

The OECD has reduced the global economic growth forecast to 3% from 3.6% projected earlier.

“Weak trade growth, sluggish investment, subdued wages and slower activity in key emerging markets will all contribute to modest global GDP growth of 3 percent in 2016, essentially the same level as in 2015, Global recovery is expected to improve only to 3.3 percent in 2017,” the Global Economic Outlook published on June 1 says.

Latvian Prime Minister Maris Kucinskis (Greens/Farmers) and Angel Gurria, OECD Director General, signed an agreement on Latvia’s accession to the OECD in Paris on June 2.

Meanwhile the Finance Ministry forecasts Latvia's GDP to grow 3% in 2016 and 3.3% in 2017.

And according to the SEB bank, Latvia's GDP growth in 2016 is projected to be 2.7% and 3.5% in 2017.

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