SEB: Latvian economy to shrink in 2008

RIGA 's Analystsfrom SEB Banka, one of the largest banks in Latvia, have predicted thatthe country's economy will contract by as much as 0.8 percent in 2008.

"I a quite short period of time, in just nine months, Latvia'seconomic growth has fallen from a steady double figure growth to zero," theanalysts said in a macroeconomic report released on Oct. 3.

"In addition to domestic problems, extremely negativedevelopments in the world's financial markets have been affecting the economyincreasingly, undermining confidence in the financial sector and cuttingforecasts for global economic development. It is these external factors thatare making the strongest impact on economic indicators in Latvia,"the report said.

The report said that compared with the beginning of 2008, inthe second quarter, private consumption and investments into businessescontinued to decline as export growth slowed.

Government consumption has more or less helped sustain the existing leveland it is expected to play an important role in maintaining economic activityin the following quarters amid a decreasing activity of the private sector.

Domestic trade saw a serious fall in the second quarter by 5.9 percent. Thisdecrease was caused both by last year's high base of 14.3 percent and areduction of spending by residents. Industrial production also saw a 5.3percent drop, the SEB analysts said, adding that this decline had beencontinuing for five consecutive quarters.

"Unfortunately, a recession will be hard to avoid in thefollowing few quarters, as economic activity continued to decline during thesummer months and the current prevailing mood, influenced by domestic andexternal factors, is not optimistic either," the report said.

"Although next year the economy will be supported bygovernment measures aimed at fostering entrepreneurship and faster absorptionof EU funds, the situation in the world economy will hamper economic recovery,"it said.

The Latvian Central Bank, meanwhile, predicted at the end ofSeptember that growth in the country will remain small but positive overallthis year, despite a contraction in the third and fourth quarters of the year.