Kalvitis concerned about red-hot economy

  • 2005-09-14
  • Staff and wire reports
RIGA - Prime Minister Aigars Kalvitis expressed concern last week that the Latvian economy might be growing too fast and could overheat. "It is clear that our economy is growing at a pace that is simply fantastic. The government should think well about how to restrict consumption in the country 's in relation to both the rapid inflation and the likely effects from rising fuel prices," he said.

"We will have to think about it because in such circumstances the threat of overheating is much higher than in the case of continuous slow economic growth," stressed the prime minister.

The national statistics office announced that GDP growth over the first six months was 9.5 percent, while second quarter growth was 11.6 percent, the highest since restoration of independence in 1991.

Kalvitis said that the government could not take any rash, ill-considered measures to stop the economic growth. "It is the goal of every government, every nation to grow fast. Only the process must be controlled and monitored with great accuracy," he said.

Finance Minister Oskars Spurdzins told the Baltic News Service that the stellar rate of growth was "excellent" and "unprecedented," but with it came the threat of even higher inflation. Still, there was no other way for Latvia to fulfill its goal and achieve the prosperity of European countries, he said.

The finance minister expects annual GDP this year to grow by some 8 percent.

SEB Latvijas Unibanka analyst Andris Vilks said the 11.6 percent quarterly growth figure was "shocking" and "far from close to forecasts by analysts." He said it was pleasing that Latvia was once again able to beat Estonia for the title of the fastest growing EU member state.

"Seeing those figures and realizing that the second half of the year will also bring us a positive mood, we can expect GDP growth around 8.5 percent this year," said Vilks.

Parex Asset Management analyst Zigurds Vaikulis said that Latvia fully deserved to be called "a tiger" by the pace of economic growth. He added that after the second-quarter figures, the bank was revising its 2005 GDP forecast from 7.5 percent to 8.5 percent.

Still, the specter of inflation hovered over the success. "We're worried about the influence of growing living costs on private consumption and overall economic activity in the country, but the new facts made us revise the GDP growth forecast for 2005," said Vaikulis.

Indeed, despite a small month-on-month decline in August, annual inflation continued to charge ahead at 6.1 percent at the end of the month.