Analytics, Economics, Financial Services, GDP, Latvia, Markets and Companies, Metals Market, Wages

If problems at Liepajas metalurgs are not solved and the company is shut down, the growth could be one percentage point lower, the association informs in its macroeconomic review, as the head of the association's Economic and Monetary Affairs Committee, Swedbank chief economist Martins Kazaks told reporters.

Compared to the past several years, economic growth pace will be slower but nevertheless quite solid this year, said Kazaks. Next year, the association is predicting 5% economic growth for Latvia.

The association's experts believe that Latvia's economy is fairly well balanced at the moment, the growth is extensive and steady. Domestic consumption is stable at the moment, export growth has slowed down but in April exports must have nevertheless increased year-on-year.

Investment flow also remains comparatively steady, and the concerns about a steep reduction in European Union funding for Latvia have not proved right.

Latvia has very low inflation at this time, which means that residents have more money to spend, said Kazaks. The association's macroeconomic review says that the very low inflation came as a little surprise because usually such low inflation does not go hand in hand with such rapid growth as now. This suggests that the business cycle in Latvia is in an earlier stage than the association originally believed – in other words, the actual output is still behind the potential. The labor market has a greater untapped potential, and the concept of labor deficit in many cases is proven wrong once higher wages are offered, the experts say in the review.

Wages and salaries in real terms in 2012 recovered only one fifth of the lost

The association's experts predict the average inflation this year at 1.4% and next year at 2.9%.

Last year, average inflation in Latvia was 2.3%, economic growth amounted to 5.6%, up from 5.5% in 2011.

Latvia's national economy has not yet returned to the pre-crisis level, however, exports last year exceeded the pre-crisis peak in exports by 16%, note the association's experts.