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Swedbank lowers Latvia's GDP growth forecast for 2016 to 2.1 pct

Xinhua, August 30, 2016 Adjust font size:

Swedbank has downgraded Latvia's economic growth forecast for this year from 3 percent to 2.1 percent, according to the Scandinavian bank's latest Economic Outlook presented Monday.

Martins Kazaks, chief economist at Swedbank Latvia, explained that the growth forecast has been slashed because of an unexpectedly weak inflow of investment.

Despite the drop in investments and a crisis in construction, the size of Latvia's employed population even grew somewhat in the first half of the year, while unemployment continued to decline, wages climbed and household spending increased, Kazaks said in a publication in Latvia's Diena daily.

Although Latvia's economic output has been significantly weaker than the government projected, tax revenues are in line with the target and the budget is stable. Populism and geopolitical issues are causing concerns, but the global economy is expanding, providing opportunities also for Latvian exporters to grow and make profits.

With EU funding and other investment likely to increase next year, Latvia's economic growth is expected to accelerate to 3 percent in 2017, and to 3.3 percent as banks' loan portfolios grow.

In the first half of 2016, the Latvian economy expanded by 2.1 percent against the same period last year. Latvia's economic performance proved much weaker than expected, primarily because of a 20 percent slump in investment.

There was also good news, though, as corporate loans started to grow in July after seven years of decline, the Swedbank economist noted.

This year, Latvia is likely to see either zero inflation or a slight deflation. Next year, consumer prices will rise at a faster pace, with inflation rate likely to pick up to 2.5 percent in 2017 and drop to 2 percent in 2018, according to Swedbank's projections.

The Scandinavian bank also expects wages in Latvia to rise 5-6 percent this year as the construction sector gradually recovers from the crisis and EU funding starts flowing into the economy in the second half of the year, reducing unemployment and putting pressure on wages.

Swedbank is the largest bank by assets operating in Latvia. Endit