Analytics, Economics, GDP, Inflation, Latvia

The Economy Ministry expects Latvia's gross domestic product to fall 18% this year, and the GDP reduction will continue also in 2010, reports LETA.

According to the Economy Ministry's report, private consumption decrease in 2009 will be caused by the significant budget cuts, household lending that has practically come to a halt, decreasing wages and increasing unemployment. In 2010 private consumption could further decrease because the employment rate and wages will not rise.

Investment in the private sector will also decrease, although it will partly offset by public investment in infrastructure and the government's efforts to ease access to financial resources.

The export-import deficit will improve in 2009 though because imports will decrease due to the falling domestic demand, however, given the weak demand in Latvia's export markets, exports will also decrease this year.

Construction sector will shrink the most this year and in 2010; retail trade and processing industry will also contract significantly. On the other hand, transport and communications will be affected the least.

Expanding exports will become the main stimulus to the economic development in Latvia, the Economy Ministry believes. That is why improving competitiveness of Latvia's main export sectors will be of crucial importance.

Until now, competitiveness of Latvian industry was largely based on inexpensive labor and lower costs. That is no longer the case; therefore stepping up productivity and further development of exports will make it possible for Latvia to fare better on international markets.

The Economy Ministry believes that economic development of Latvia could resume in 2011, provided that the global financial market will have stabilized by then.