RIGA - Bank of Latvia President Ilmars Rimsevics has said that Latvia's economy is seeing the first signs of a "soft landing" and that peak growth is a past phenomenon.
Lending rates and imports have both fallen considerably, and GDP growth, which reached its apex at the end of 2006, can only slow down, Rimsevics told a press conference on Nov. 15.
"This all means that Latvia's economy is cooling down," said the central banker.
Latvia's economy 's the fastest growing in the European Union 's has been in double-digit territory for two years thanks to easy credit and robust consumer activity. Third-quarter GDP soared 11.1 percent year-on-year, the statistics agency announced earlier this month. 2006 growth was 11.9 percent.
The downside, however, has been a huge current account deficit and rampant inflation (both of which are also the highest in the EU).
The results have thrust Latvia in the European spotlight, as many economists have predicted doom and gloom 's or a "hard-landing" scenario 's for the Baltic state. In such a worst-case scenario the economy would slow down to 2 percent annual growth or less and face years of stagnation.
Rimsevics said the Bank of Latvia had no information that would foresee anything other than a soft landing.
The bank's analytical team predicted that GDP would decline to 7 percent next year now that lending is down 's in August and September it was the slowest in three years, the bank said 's and speculation on the real estate market has subsided.
Inflation, however, continues to haunt Latvia, reaching an annual rate of 13.2 percent in October and 2.2 percent for the month. Economists and the central bank agree that this indicator will climb even higher over the winter, which would indicate that Latvia is not out of the woods yet.
The Bank of Latvia said on Nov. 15 that average annual inflation would be 10 percent this year and 13 percent in 2008.
"Taking into account that demand is reacting slowly and the impact of supply on inflation will remain significant, no slowdown of core inflation growth is expected in the coming months," the bank said.
One of the primary drivers behind Latvia's economic boom has been real estate. Recent reports, however, show that the market has slowed considerably in terms of the number of transactions and new building projects.
Ober-Haus, the Baltics' largest real estate agency, said in a recent report that the construction of 40 new residential houses this year was put on hold due to a lack of funding.
The agency said that an increasing number of developers have given up construction projects because of insufficient finance. The company said that developers are postponing projects until they can find the buyers who have the means to purchase apartments in advance.
In its market review, Ober-Haus said that banks have reviewed their lending policies and become more customer-friendly. More banks are informing their customers in advance on the amount of the loan available, which narrows down the variety of choices.
By law banks now require a certificate of income from the State Revenue Service as well as a 10 percent down payment on any property purchase.
Apartment prices in Riga have been decreasing, the agency said.