Inflation peak has been reached - SEB Banka

RIGA - Inflation peak has been reached and the worst situation in energy is behind, said SEB Banka's economist Dainis Gaspuitis during presentation of the latest Nordic Outlook today.

He said that we have efficiently adapted to the situation and Russia's blackmail with natural gas has failed. At the same time, also businesses have adapted to the current situation, reducing their gas consumption. However, prices will grow sooner or later.

In relation to oil, the situation when Russia is leaving the oil market, makes the market relations tense, even though sanctions and price caps have made prices slightly declined, they may grow again.

At the same time, the SEB economist said that energy prices have weakened competitiveness of the euro area.

The economist said that this year we will see the impact of the high inflation and increase of interest rates. At the same time, the inflation is already decreasing and risks of energy crisis are also lower.

Gaspuitis noted that dropping inflation will come with positive surprises, while energy prices will be fluctuating and any new unfavorable factor might drive the world economy into recession.

The bank said that business sentiment differs, but it still can be expected that we will close the year with a slight, but positive growth. Transportation prices have returned to the pre-Covid level, global supply chains are finding new ways, people's purchasing power will renew in the second half of the year.

Commenting on exports, the economist said that Russia's negative impact so far has been insignificant. At the same time, business representatives find ways to operate in CIS countries, even though these activities are being assessed as negative from the political point of view.

The biggest risks for economic growth will be geopolitical conflicts, inflation, energy prices, interest rates and cyber risks.

As reported, SEB has reduced the Latvian gross domestic product (GDP) growth forecast for this year from 1.1 percent to 0.4 percent.

Also, SEB has reduced the Latvian GDP growth forecast for the next year from the 3.5 percent predicted in November to 2.7 percent, which is the slowest growth among the Baltic countries.

At the same time, SEB reduced Latvia's annual average inflation forecast for this year from 9.9 percent to 9 percent, but increased it for next year - from 2.1 percent to 2.9 percent.