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Latvia Business Forecast Report Q1 2015

  • November 2014
  • -
  • Business Monitor International
  • -
  • 42 pages

Core Views

Latvia’s economic recovery will continue into 2015 and beyond, although we emphasize 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 going forward.
The Russian embargo on EU agricultural goods has weakened the growth outlook and Latvia will be among the worst EU states affected. Growth will remain subdued due to the need for further deleveraging.

Major Forecast Changes

We have downgraded our forecast for Latvia’s real GDP growth as the escalating trade war between the EU and Russia is adversely affecting Latvia’s goods and services export prospects. We now forecast Latvia to grow by just 2.1% in 2014 and 2.2% in 2015, from a previous forecast of 3.8% for both years previously due to the impact of the Russian embargo on trade. We have adjusted our 2015 budget deficit forecast to 1.1% of GDP, from 1.7% previously following the passing of the government’s draft budget.

Table Of Contents

Latvia Business Forecast Report Q1 2015
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 Index 7
Domestic Politics 8
Coalition To Remain Intact 8
We expect the ruling coalition, headed by Unity party, to remain in power following the results of Latvia's parliamentary election in early
October. Coalition partners Greens and National Alliance both increased their share of the vote, and may push for more dominant roles
within government, although we expect policy trajectory to remain largely unchanged.
table: Political Overview 8
Long-Term Political Outlook 9
Slower Growth And Ethnic Tensions Key Themes To 2024 9
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 11
SWOT Analysis 11
BMI Economic Risk Index 11
Economic Activity 12
Growth Outlook Deteriorates Further 12
We have lowered our forecast for 2015 real GDP growth to 2.2%, from 3.5% previously, as the deterioration in EU-Russia relations and
slowing regional growth is dampening the growth outlook for Latvia.
Table: GDP By Expenditure 12
Balance Of Payments 14
Deleveraging May Be Delayed By Russian Embargo 14
The deterioration in Russia-EU trade relations is worsening the outlook for Latvia's current account deficit over the coming quarters, and
may delay progress in deleveraging the credit excesses of the pre-crisis period.
Table: Current Account 15
Fiscal Policy 16
No Major Budget Adjustments Expected 16
The ruling coalition has survived the parliamentary election, and will remain in power for another term. We do not expect to see a major
shift in policy continuity, and expect the government to remain one of the most fiscally conservative in the region.
table: Fiscal Policy 16
Chapter 3: 10-Year Forecast 19
The Latvian Economy To 2023 19
Looking For A 'New Normal' 19
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 ten years, despite the country's accession to the eurozone, as it struggles with competitiveness and demographic
challenges.
table: LONG-TERM MACROECONOMIC FORECASTS 19
Chapter 4: Operational Risk 21
Operational Risk Index 21
Operational Risk 22
Table: Developed States - Labour Market Risk 22
Table: Developed States - Logistics Risk 25
Table: Developed States - Crime And Security Risks 27
Table: Developed States - Trade And Investment Risk 30
Chapter 5: Key Sectors 33
Shipping 33
table: Major Ports Data 34
Other Key Sectors 39
Table: Pharma Sector Key Indicators 39
Table: Telecoms Sector Key Indicators 39
Table: Infrastructure Sector Key Indicators 39
Table: Food and Drink Sector Key Indicators 40
Table: Autos Sector Key Indicators 40
Table: Freight Key Indicators 40
Chapter 6:BMI Global Assumptions 41
Global Outlook 41
Reality Check: Uncertainty Reigns 41
Table: Global Assumptions 41
Table: Developed States, Real GDP GrowtH, % 42
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 42
Table: Emerging Markets, Real GDP Growth, % 43

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