Nordea Bank has warned that negative global trends on the energy and commodity markets are likely to have a more far-reaching impact on Baltic consumers than originally thought.
Roger Wessman, chief analyst with Nordea Markets, told journalists on April 24 the outlook for Latvia had become increasingly pessimistic in recent months and the slowdown of global markets would probably be stronger than previously believed.
"Nobody doubts anymore that the U.S. is heading for a recession phase, with both the rise in unemployment and the decrease in consumption pointing to that. The eurozone is also continuing to feel the consequences of the subprime crunch, which is exacerbated by a substantial fall of the U.S. dollar," Wessman said.
He said that the Baltic states are facing challenging years ahead.
"Latvia's economic growth figures have abruptly turned around," said Wessman, adding that foreign investments have thus far failed to foster production and exports.
The analyst also said the rapid decline in lending indicated that economic growth may even come to a standstill 's a sure sign of a hard landing 's while the Baltic country's high inflation could probably be driven not by development but global price gains.
Commenting possible future developments, Wessman said that although the spiraling effect of wage increases is still affecting prices, retail prices should start dropping.
Valdis Siksnis, head of Nordea's Latvian branch, said that as domestic demand slows the country needed to focus on export development.
"Although export volumes have been growing lately, problems in the U.S. and European markets threaten further development of this positive trend. The global economic backdrop will definitely make financial resources costlier, and most likely will reduce the inflow of foreign investment in Latvia," Siksnis said.
He said that the bank would continue its previous business strategy.
"We are set to continue the previous pragmatic crediting policy and further expansion of the network of our branches," Siksnis said.
In February, the Latvian branch of Nordea ranked fourth among the country's 24 banks in terms of assets.
