SEB: Latvian economy to shrink in 2008

Oct 03, 2008
Talis Archdeacon in cooperation with BNS

RIGA – Analysts from SEB Banka, one of the largest banks in Latvia, have predicted that the country's economy will contract by as much as 0.8 percent in 2008.

“I a quite short period of time, in just nine months, Latvia's economic growth has fallen from a steady double figure growth to zero,” the analysts said in a macroeconomic report released on Oct. 3.

“In addition to domestic problems, extremely negative developments in the world's financial markets have been affecting the economy increasingly, undermining confidence in the financial sector and cutting forecasts for global economic development. It is these external factors that are making the strongest impact on economic indicators in Latvia,” the report said.

The report said that compared with the beginning of 2008, in the second quarter, private consumption and investments into businesses continued to decline as export growth slowed.

Government consumption has more or less helped sustain the existing level and it is expected to play an important role in maintaining economic activity in the following quarters amid a decreasing activity of the private sector.

Domestic trade saw a serious fall in the second quarter by 5.9 percent. This decrease was caused both by last year's high base of 14.3 percent and a reduction of spending by residents. Industrial production also saw a 5.3 percent drop, the SEB analysts said, adding that this decline had been continuing for five consecutive quarters.

“Unfortunately, a recession will be hard to avoid in the following few quarters, as economic activity continued to decline during the summer months and the current prevailing mood, influenced by domestic and external factors, is not optimistic either,” the report said.

“Although next year the economy will be supported by government measures aimed at fostering entrepreneurship and faster absorption of EU funds, the situation in the world economy will hamper economic recovery,” it said.

The Latvian Central Bank, meanwhile, predicted at the end of September that growth in the country will remain small but positive overall this year, despite a contraction in the third and fourth quarters of the year.

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