Latvia set for high growth

RIGA - Latvia will be the eurozone’s fastest growing economy next year; the country’s gross domestic product (GDP) will grow 4.2 percent in 2014, 5.2 percent in 2015, 5 percent in 2016, according to the latest Eurozone Economic Forecast (EEF) by Ernst & Young, reports Nozare.lv.

Latvia will join the eurozone next year, and the study, for the first time, analyzes the economic situation in Latvia. According to Ernst & Young, Latvia’s GDP growth will be based on the improving situation in the eurozone, which will facilitate exports, the adoption of the euro, which will have a positive effect on trade, growing access to financing, and household consumption growth on the internal market.

Ernst & Young predicts moderate inflation in Latvia next year, at 2.4 percent, which will be above the eurozone average inflation level. Inflation is expected stay at the same level in 2015 and 2016.
International rating agency Standard&Poor’s likes what it sees too, as it has raised the outlook on Latvia’s rating from stable to positive, whereas Latvia’s rating remains unchanged at the BBB+ level, the Finance Ministry says.
Standard&Poor’s notes that Latvia’s rating will be likely increased within the next 24 months if the country’s economic growth remains strong, steady and balanced, and if the growth is faster than in other countries with similar income levels, Latvia also should reduce external and government debts.

The positive outlook reflects Latvia’s growth potential, improved fiscal situation and eurozone membership, which in the future will reduce external risks and offer banks access to the European Central Bank’s liquidity instruments, says Finance Minister Andris Vilks.

S&P’s also said it expected gross domestic product to grow 4 to 5 percent annually during the next three years. The agency notes that Latvia has improved its fiscal position greatly over the past several years, reducing the budget deficit from almost 10 percent in 2009 to 1.5 percent in 2013. If such fiscal policy is pursued in the future, the government debt will be decreasing faster than anticipated, and the country’s credit rating could be increased.