Lithuania set to overtake Latvia as Eurozone's fastest-growing economy

2014-12-13
from wire reports, VILNIUS

Lithuania will surpass Latvia next year as the fastest growing Eurozone economy, according to Ernst & Young's' annual Eurozone Economic Growth Forecast, even though Latvia's economic growth is expected to grow faster than this year.

The EY report states that while Latvia's economy will grow by about 3.4 percent next year, Lithuania is expected to see growth of around 4.5 percent, which means that after several years of posting the highest growth in Europe, Latvia will no longer be the fastest growing economy.

''After a slowdown [in growth] to 2.8 percent this year, reflecting eurozone and Russia trade restraints, Latvia’s GDP growth is forecast to pick up to 3.4 percent in 2015 and above four percent in the medium term. Export growth will drive the initial recovery and stay strong throughout the forecast period,'' the report predicts.

The reports also claims that investment in Latvia will also increase more rapidly from 2016, boosted by low interest rates and increased opportunities for trade as a result of EU entry.'

[Latvia's] current account will move into surplus in 2015, lessening reliance on capital inflows,'' EY emphasizes.

''The relaxed ECB monetary stance and an ongoing fiscal deficit will fuel faster inflation and wage growth in Latvia, ensuring that consumer demand can rise, as well as household saving,'' the report goes on to say.

According to the report, private consumption will increase by three percent next year, but in 2016 by 3.4 percent. At the same time, a 3.7 percent increase in exports is expected next year, but from 2016 to 2018 the increase in exports will exceed 4 to 5 percent each year.

''Overheating is a risk in 2016–18, but should be avoidable if skill shortages are averted and productivity growth is maintained," according to Erst and Young.

The report goes on to say that Latvia's GDP will continue to steadily increase in the coming years: by 3.4 percent in 2015, 3.9 percent in 2016, 4.4 percent in 2017, and 4.5 percent in 2018.L