RIGA - Latvian businesses must forget about the Russian and Belarusian markets at the moment and instead shift their focus to the West, Bank of Latvia Governor Martins Kazaks said in an interview with LETA.
The head of the Latvian central bank said that although this will cause certain problems, there are no reasons to anticipate a major increase in unemployment.
"There are two main points of reference. The first is an end of the war or a lasting ceasefire. The other is Russia's geopolitical ambitions. They will be determining dynamics in the near term. If these two things do not change, we can only expect trade ties with Russia to get severed. Latvia's eastern border will be properly fenced and the cross-border trade and cash flows will be minimal," Kazaks said.
Although Latvia's trade with Russia has been declining by the year, there are still companies that are going to suffer. Moreover, those Latvian enterprises that have been doing business in the Russian market, have been doing this intensively and in large amounts, which means a large part of their turnover is generated in this market, Kazaks said. The main support the state can provide to these companies should involve assistance in finding new export markets. Compensating them for the loss of the Russian market would not be useful because access to this market is likely to be gone for good.
"Yes, in some cases unemployment may grow as these companies scale down production. But Latvia's unemployment rate is relatively low and the main question is about these employees' skills and their ability to find other jobs in other industries, other companies. In Latvia, the shortage of skilled labor is still severe, and as employment opportunities at one company end, they can be found elsewhere. The state, meanwhile, should seriously focus on skills and training issues to make sure people have the skills required on the labor market. There are no reasons to anticipate major unemployment growth," the Bank of Latvia governor said.
He admitted that problems can be expected due to a disrupted supply of commodities like metals and timber.
"Prices on these commodities will climb until businesses manage to find other suppliers. But these are consequences of Russia's invasion of Ukraine and they will be lasting. The world will never be what it was on February 23. The geopolitical and economic situation has changed substantially. The Russian market will see a deep recession in the next coming years and the depth of this recession will depend solely on Russia's choice - to continue the war in Ukraine or not," Kazaks said.