OECD predicts "severe recession" for Latvia

The latest economic projections from the Organization for Economic Cooperation and Development (OECD) suggest Latvia is in for "a severe recession" and that GDP is likely to shrink by more than 10 % this year.

In its June 2020 Economic Snapshot, the OECD says:

"Economic growth slowed before the pandemic started and is projected to contract sharply in 2020, despite a relatively lenient lockdown. Activity will recover, but gradually, as uncertainty will remain high and activity in some service sectors will remain subdued. Domestic demand will drive the recovery, while exports will be slower to pick up due to the severe recession in Europe. Investment will drop and stay low throughout 2021, particularly should a second lockdown be necessary (the double-hit scenario). Unemployment is projected to increase and remain elevated due to a slow recovery of labour-intensive sectors. Public debt will soar but will stay low relative to other OECD countries."

 

"The government has quickly adopted measures to support firms' liquidity through loan guarantees and tax deferrals. Some discretionary measures have also been adopted to support employment. Further fiscal policy measures will be needed to support the recovery. Accelerating infrastructure projects and reducing the labour tax wedge on low earnings could help the labour market recover faster. Rapidly ramping up the uptake of digital technologies, including through training to improve digital skills, could help minimise the disruption from a second outbreak," the OECD said.

GDP will contract by 8.1% under what the OECD called a "single hit" scenario, or by 10.2 % under a "double hit" scenario this year before rebounding with growth of between 2 % and 6.3% next year, the OECD guessed. "A severe recession is projected in both scenarios," it said.

Despite the sobering figures, many of Latvia's fellow OECD members are set to fare significantly worse in terms of the hit to GDP with Spain, the United Kingdom, France and Italy likely to experience the largest GDP contractions.

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