Bank of Latvia upgrades GDP growth outlook to 3.3% for 2021 – Baltic News Network

The Bank of Latvia has upgraded the GDP growth outlook for 2021 from the previously estimated 2.8% to 3.3%, according to information published by the bank.

At the same time, the central bank has also upgraded Latvia’s economic growth outlook for 2022 from December’s estimated 5.3% to 6.5%.

Latvia’s 2023 GDP growth is estimated at 3.6%.

Bank of Latvia governor Mārtiņš Kazāks explains that March’s outlook when compared to December 2020 is more optimistic because of the supporting monetary policy and beneficial financing conditions, as well as the wide fiscal policy support for businessmen and residents to help them overcome the consequences from Covid-19.

Assuming vaccination goes as planned, it is expected that the epidemiological restrictions may be eased in the second half of 2021, which in turn expected to improve consumers’ and businessmen’s general mood. The Bank of Latvia predicts the measures in place to improve households’ income and use of savings generated during the pandemic will have a positive effect on private consumption.

«On the one hand rapid wage growth is delayed by high supply of working hands and limited financial resources available to companies. At the same time, minimal wage increase, the issue with wages for doctors and teachers, as well as short-term bonuses paid to medical personnel for work with Covid-19 patients, and single-time benefits for select groups also stimulate consumption. Public consumption’s rapid growth is tied to increased fiscal support aimed to reduce the impact from the crisis,» said the manager of Bank of Latvia Monetary Policy Office Uldis Rutkaste.

He added that investment decisions will be made based on improvement of the general mood of the national economy, as well as the financing to be available from the EU Recovery and Sustainability Mechanism.

According to the outlook of the Bank of Latvia, export growth is estimated close to foreign demand, as Latvia’s trade partners slowly overcome the crisis with lower losses than the average across the EU, making their start positions better in general. Exports of goods in the second half of 2020 and the improved mood across the board will gradually restore the service sectors originally impacted by restrictions. With foreign and domestic demand on a rise, imports of goods and services will rapidly increase.

State support helps maintain the capacity of the national economy’s supply, protecting against a mass wave of potential bankruptcies and unemployment.

This is why as the spread of the virus reduces and demand increases, the national economy will be able to recover more strongly, says Rutkaste.

The estimate from the Bank of Latvia shows that the state support measures announced to halt the second Covid-19 wave have an impact on the state budget’s deficit and may increase Latvia’s GDP by 3.5%. Short-term income maintenance helps reduce the negative consequences of the crisis, but government support should focus on promoting long-term growth after the end of the Covid-19 pandemic, Rutkaste stresses.