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Latvia Business Forecast Report Q3 2014

  • May 2014
  • -
  • Business Monitor International
  • -
  • 38 pages

Core Views

L atvia's economic recovery will continue into 2014 and beyond, although we emphasise that strong headline real GDP growth is largely a result of statistical base effects. We see growing scope for the government to ease up on its long-held policy of fiscal austerity. We expect the moderation in consumer prices in Latvia to pick up slightly in 2014. We forecast inflation to average 1.1% in 2013 and 2.5% in 2014.

Major Forecast Changes

No major forecast changes this quarter.

Table Of Contents

Latvia Business Forecast Report Q3 2014
Executive Summary . 5
Core Views 5
Major Forecast Changes ..5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis .. 7
BMI Political Risk Ratings .. 7
Foreign Policy . 8
Could Latvia Be The Next Crimea? 8
Russia is unlikely to have the means to destabilise Latvia via the country's ethnic Russian population as it did in Ukraine. Nevertheless,
Riga will view Moscow warily and is likely to raise defence spending accordingly over the coming years.
Table: Political Overview .8
Long-Term Political Outlook .. 10
Slower Growth And Ethnic Tensions Key Themes To 2023 10
The coming decade for Latvia will be marked by the scars of the global financial crisis of 2008/09. The country's governments will
struggle to return the economy to pre-crisis growth and will pay the political and social price for this inability to promote growth and ease
ethnic tensions.
Chapter 2: Economic Outlook . 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Weaker Growth From Ukraine Crisis .14
Economic activity in Latvia continues to decelerate, posting flash real GDP growth of just 2.8% year-on-year (y-o-y) in Q114. While
the deteriorating economic outlook in several key trade partners underpins our below-consensus real GDP growth forecast for 2014,
domestic demand continues to improve, and we expect growth to accelerate this year, assisted by more favourable base effects.
Table: Economic Activity .14
Fiscal Policy .. 16
Defence Spending To Rise ..16
Although we expect Latvia's fiscal deficit to widen slightly in 2014, sovereign creditworthiness is likely to improve, and the economy can
tolerate a larger fiscal deficit while keeping debt levels sustainable.
Table: Fiscal Policy ..17
Balance Of Payments . 18
External Accounts Remain Robust 18
We forecast Latvia to run a modest current account deficit equivalent to 1.1% of GDP in 2014, which is likely to remain easily covered
by financial account inflows.
Table: Current Account ..18
Chapter 3: 10-Year Forecast . 21
The Latvian Economy To 2023 .. 21
Looking For A 'New Normal' 21
After three years of growth outperformance following one of the worst recessions in Europe, we think growth is set to shift down a
gear over the next 10 years despite the country's accession to the eurozone, as it will struggle with competitiveness and demographic
challenges.
Table: Long-Term Macroeconomic Forecasts .21
Chapter 4: Business Environment 23
SWOT Analysis 23
BMI Business Environment Risk Ratings .. 23
Business Environment Outlook 24
Institutions . 24
TABLE: BMI BUSINESS and OPERATION RISK RATINGS ..24
TABLE: BMI LEGAL FRAMEWORK RATING .25
Infrastructure 26
TABLE: LABOUR FORCE QUALITY ..26
TABLE: EMERGING EUROPE - ANNUAL FDI INFLOWS ..27
Market Outlook 28
TABLE: TRADE and INVESTMENT RATINGS ..28
Operational Risk . 29
Chapter 5: Key Sectors 31
Freight Transport .. 31
Table: Road Freight ..32
Table: Rail Freight .32
Table: Maritime Freight ..33
Table: Air Freight 33
Other Key Sectors . 35
Table: Pharma Sector Key Indicators ..35
Table: Telecoms Sector Key Indicators .35
Table: Infrastructure Sector Key Indicators 36
Table: Food and Drink Sector Key Indicators .36
Table: Autos Sector Key Indicators ..36
Chapter 6: BMI Global Assumptions .. 37
Global Outlook . 37
Growth Increasingly Polarised ..37
Table: Global Assumptions ..37
Table: Developed States, Real GDP GrowtH, % 38
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % .. 38
Table: Emerging Markets, Real GDP Growth, % ..39

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