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Latvia Country Risk Report Q1 2017

  • November 2016
  • -
  • Business Monitor International
  • -
  • 39 pages

Core Views

We continue to see the Latvian economy gaining strength over the coming quarters as external conditions improve and fixed asset investment recovers. We forecast real GDP growth of 2.3% in 2016 and 3.2% in 2017. Over the longer term, productivity gains should offset demographic headwinds to allow the country to grow at a faster pace than the eurozone average. The government of Maris Kucinskis has laid out a timetable to major policy proposals in two key policy areas of taxation and healthcare, which aim to improve productivity and raise healthcare provision. Firm policy proposals are not expected until the spring of next year with much debate expected in the interim. Externally the actions of Moscow are of concern, with extra uncertainty added into the geopolitical arena by the imminent US election.

Table Of Contents

Latvia Country Risk Report Q1 2017
Executive Summary 5
Core Views 5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Growth Pickup On Track8
We continue to see the Latvian economy gaining strength over the coming quarters as external conditions improve and fixed asset
investment recovers We are forecasting real GDP growth of 2 3% in 2016 and 3 2% in 2017 Over the longer term, productivity gains
should offset demographic headwinds to allow the country to grow at a faster pace than the eurozone average
GDP By Expenditure Outlook 9
Gradual Investment Recovery Ahead9
Weak demographics pose significant threats to Latvia's medium-term growth outlook However, we believe that productivity gains will
allow real GDP growth to outstrip its eurozone peers, given the country's relative political stability and friendly business environment
TABLE: GDP GROWTH FORECASTS 9
TABLE: PRIVATE CONSUMPTION FORECASTS 9
TABLE: GOVERNMENT CONSUMPTION FORECASTS 9
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 10
Structural Fiscal Position 11
Fiscal Accounts To Remain In Solid Shape 11
While an ageing population will put upside pressure on welfare spending, Latvia will continue to run only minimal fiscal deficits, leading
to a sustained reduction in government debt ratios over the coming years
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS 12
External Trade And Investment Outlook 12
Large External Liabilities Pose Only Minor Threat 12
Latvia's external indebtedness is significantly larger than most eurozone peers, although the country now runs only a small current
account deficit and external debt had been declining since 2010 Despite high external indebtedness, Latvia's structural external position
will continue to improve over the coming years
TABLE: CURRENT ACCOUNT BALANCE FORECASTS13
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 14
TABLE: EXPORTS14
TABLE: IMPORTS 14
Chapter 2: 10-Year Forecast 17
The Latvian Economy To 2025 17
Looking For A 'New Normal' 17
After 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 17
Contents
Chapter 3: Political Outlook 19
SWOT Analysis 19
BMI Political Risk Index19
Healthcare And Tax Reform On The Agenda 20
The government of Maris Kucinskis has laid out a timetable to major policy proposals in two key policy areas of taxation and healthcare,
which aim to improve productivity and raise healthcare provision Firm policy proposals are not expected until the spring of next year
with much debate expected in the interim Externally the actions of Moscow are of concern, with extra uncertainty added into the
geopolitical arena by the imminent US election
TABLE: POLITICAL OVERVIEW 20
Long-Term Political Outlook 21
Slower Growth And Ethnic Tensions Key Themes To 2025 21
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 4: Operational Risk 25
Operational Risk 25
TABLE: DEVELOPED STATES - LABOUR MARKET RISK 25
TABLE: DEVELOPED STATES - LOGISTICS RISK 28
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK 31
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK 33
Chapter 5: BMI Global Macro Outlook35
Global Macro Outlook 35
Austerity Has Peaked, But Populism Is Not Yet Policy 35
TABLE: GLOBAL ASSUMPTIONS35
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 36
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 37
TABLE: MACROECONOMIC DATA and FORECASTS 39

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