Swedbank cuts Latvia's growth forecast for 2019 and 2020

Swedbank, the largest financial institution in the Baltic states, revised downwards its growth forecast for Latvia this year and next.

The latest Swedbank Economic Outlook suggests that while the region continues to do comparatively well, the threat of approaching global economic problems will not leave it untouched. 

Of the Baltic states as a whole, Swedbank said: "Despite recent resilience, there are building signs that weakness in Germany and global trade is likely to catch up with the Baltic countries. Industrial sector confidence has weakened, and exports are likely to follow, but households remain sanguine."

Talking specifically of Latvia, Swedbank said: "After two years of rapid growth of close to 5%, the economic expansion moderated in the first half of 2019 to 2.6% (3.1% seasonally and calendar adjusted) year on year, dragged down by softer investment growth (volumes still up by 8%).

"This year, the EU funds’ boost has faded as these funds have reached this EU budget planning period’s high and will stay close to this level through 2021. Although economic sentiment remains above the long-term average, it has recently worsened amidst weaker confidence in construction and export-oriented manufacturing. Falling export orders in manufacturing suggest export growth will remain weak this year, somewhat cushioned by increasing grain exports in the second half of the year," the bank said.

"We have revised our GDP growth forecast down to 2.8% for 2019, based on the weaker-than expected first half of the year. Given the global trade weakness and external risks, the growth forecast for Latvia for 2020 is revised down to 2%. Weaker external demand will hurt export performance, and poorer sentiment will affect the real economy as households and businesses review their consumption and investment plans. The global slowdown is expected to bottom out in 2020, before a slight rebound in economic growth in Latvia in 2021."

The projections are more pessimistic than those of the Latvian Finance Ministry which only last week said it expected GDP growth of 3.2% in 2019 and 2.8% in 2020.

Meanwhile Swedbank said it expected GDP growth of 3.7% in Lithuania this year and 3.3% in Estonia.

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