Estimated 18 percent drop in GDP

  • 2009-04-30
  • By TBT Staff
RIGA - Experts from across the financial and economic sectors have weighed in and agree that the Latvian economy may have fallen by as much as 18 percent in the first quarter of 2009.
The stagnation in global economics as well as the credit crisis and internal spending are likely to be blamed for the drop in the Latvian economy. 
"As the economy is continuing its free fall, in Latvia and in the rest of the world, and no sort of revitalization took place, then the fall in the first quarter could have grown to 14-15 percent. It's highly unknown how many businesses went into the gray zone," said SEB bank chief economist Andris Vilks.

Vilks predicts a 20 percent or more drop will be in the factories and financial sectors, tourism and food industries. Above 10 percent, he predicts will be in construction and farming. The only sector with minimal contraction could be transport, thanks to a stable transit system. 
Latvijas Krajbanka investment department head analyst Olga Ertuganova told portal that taking into consideration 2008 data as well as this year's data, the drop may indeed be 18 percent.
Businesses geared toward consumption, such as retail and construction sectors, which were recently the main contributors to the economic growth of Latvia, are now in the midst of a deep recession.

"Unfortunately among the leaders of the contraction will soon be also the Latvian transportation sector. There is no foundation to hope that any of Latvia's industries will end the quarter in positive percentages," said Ertuganov.  
Latvia's Hipoteka and Zemes Bank (Mortgage and Land Bank) Financial Management Department analyst Aleksejs Marcenko said, however, that he estimates only a 12-13 percent fall when comparing numbers to the first quarter of 2008.

Marcenko also said that the sectors hardest hit were those that experienced the most growth in earlier years 's construction, financial services, and tourism.
Vilks said that Latvia can hope for growth in the second half of 2010.
"I think that the world economy will start growing again in 9-12 months, and Latvia must be able to compete," he said.

Vilks said that change must come now if Latvia hopes to be able to compete on the world market.
"If the state wishes to stand on stable ground, then all the unpopular, but necessary steps have to take place now. Together with all the available funds we can show competitiveness in business and effective leadership in the next 12 months," said Vilks.