Latvian gov't cuts GDP forecast amid external uncertainty

Ministers lowered Latvia's economic growth forecast for this and next year at an extraordinary government meeting on Monday, local media reported.

With the government adopting Latvia's stability program for 2015-2018, which has to be submitted to the European Commission by the end of this month, the Baltic country's GDP growth forecast was revised downwards to 2.1 percent from 2.8 percent for 2015 and 3 percent from 3.3 percent for 2016 in light of continuous external uncertainty.

"We have downgraded our economic growth forecast amid external uncertainty, and the forecast for this year's budget deficit has been increased. Given the complicated geopolitical situation, Latvia has to be extremely cautious with forecasts and budget spending," said Latvian Finance Minister Janis Reirs.

"In this situation, I would like to repeatedly urge ministers to first of all consider structural reforms in their respective fields instead of seeking additional funding for new initiatives because drafting next year's budget will not be an easy task," he added.

If the external uncertainty decreases in the medium term, Latvia's economic growth will become steadier as external and domestic demand becomes better balanced. The Latvian economy might then grow by 3.6 percent a year both in 2017 and 2018, according to the stability program.

The forecast for Latvia's 2015 budget deficit, meanwhile, has been upped by 0.5 percentage points to 1.5 percent of GDP. In 2016, Latvia's budget deficit is projected at 1.6 percent of GDP, or 0.2 percentage points above the fiscal discipline target.

In the two following years the budget deficit figure should return to the acceptable level, that is, 1.3 percent in 2017 and 1.7 percent in 2018, the Finance Ministry said. Enditem