Strong signals for Latvian economy

Latvia’s economic growth will slow down somewhat this year but will nevertheless remain fairly strong, according to the annual report released by the Bank of Latvia on Monday.

The Baltic country’s central bank notes in the report that the Latvian economy continued to demonstrate robust performance in 2018. The country’s GDP expanded by 4.8 percent year on year as domestic demand and construction gradually replaced exports as the main drivers of growth. Latvian exports, meanwhile, weakened because of developments in key foreign markets.

Although the growth of the Latvian economy is likely to become slower, the Bank of Latvia expects it to remain fairly strong also this year.

Bearing in mind global market trends, the expected slowdown of Latvia’s economic growth and the nearing end of the European Union’s current programming period, it is essential to follow economic policies that would ensure sustained long-term growth, the central bank said.

The Bank of Latvia emphasizes in its report that in this stage of the economic cycle it is necessary to put aside some reserves to get ready for a weaker growth of the global economy and a possible rise of interest rates.

The central bank expects wage growth, which was observed in Latvia in 2018, to continue also this year. Although wage increases fuel domestic consumption and consequently also economic growth, the Bank of Latvia admits concerns over a growing discrepancy between wages and productivity, which is putting pressure on businesses’ costs and undermining their international competitiveness.

The central bank also notes increasingly severe labor shortages as one of the national economy’s most serious issues. Human resources are key to Latvia’s competitiveness, and investments in education and productivity-boosting innovation are critical.

It is therefore essential for the Latvian government and lawmakers to carry though with reforms, particularly in education and health care, the central bank concludes in the report.