Latvian economy will be negatively affected this year by decline in investment and exports due to Covid-19 pandemic - Dombrovskis

  • 2020-05-06
  • LETA/TBT Staff

RIGA - The Latvian economy will be negatively affected this year by the decline in investment and exports due to the Covid-19 pandemic, the European Commission's Executive Vice President Valdis Dombrovskis, who is also responsible for economic and financial markets, told LETA.

According to the European Commission's spring economic forecast, the Latvian economy will shrink by 7 percent in 2020, while Lithuania by 7.9 percent and in Estonia by 6.9 percent.

Dombrovskis pointed out that the economic decline in Latvia this year is forecast to be smaller than in the European Union (EU) as a whole, which is projected at 7.4 percent.

"This forecast is subject to considerable uncertainty, as it is based on the assumption that the restrictive measures of the Covid-19 pandemic will be concentrated in the first half of the year and, with the gradual easing of these restrictions, the economy will recover in the second half of the year," he added.

According to him, the Latvian economy will be mainly affected by the decline in investment and exports, which is caused by the restrictions and uncertainty related to the spread of the virus, as well as the relatively high share of exports in the economy.

"Relatively cautious measures to control the virus in Latvia mean that household consumption in Latvia will be more sustainable than in other countries. It is projected that the economic downturn this year will be followed by a relatively rapid recovery next year - economic growth in Latvia next year is forecast at 6.4 percent, but in the EU as a whole - 6.1 percent," said Dombrovskis.

As reported,  the European Commission in its latest economic forecasts projects that Latvia's gross domestic product (GDP) this year will decline by 7 percent, showing the second steepest decline in the Baltic states. 

At the same time, Latvia's GDP is expected to rise 6.4 percent next year.

Inflation has been projected at 0.2 percent this year and 1.9 percent next year.

The Commission said that due to closure of borders and external demand, investments and exports will suffer most, while domestic consumption will be better than in other countries because of softer restriction measures.

Latvia's budget deficit is planned at 7 percent of GDP this year and 4.5 percent next year.