The Bank of Latvia has downgraded Latvia’s GDP growth outlook for 2022 from the previous 4.2% to 1.8%, as mentioned by the head of the bank’s monetary policy office Uldis Rutkaste during the bank’s discussion on Wednesday, 30 March.
At the same time, the Bank of Latvia has downgraded the country’s economic growth outlook for 2023 from the previously estimated 4% to 3.2%. For 2024, the Bank of Latvia expects the country’s GDP growth at 4.1% instead of 3.3% predicted in December.
Rutkaste said the latest outlook can be viewed as a reflection of macroeconomic trends, because it was developed under conditions of increased uncertainty.
The drop in economic activity caused by the war may turn out greater if the war does not calm down or if it increases and if sanctions are expanded, said Rutkaste.
The effect from cutting commercial ties with aggressor countries can be calculated by the central bank relatively accurately. However, the effect of the possible shortage of raw materials and general mood of entrepreneurs is much harder to estimate, as these factors can narrow production, consumption and investments if the situation deteriorates.
Rutkaste said it could cause a bigger drop of activity in economy this year and postpone recovery of economic growth for a long time.
The ongoing war will maintain resource prices and inflation at a high level.
According to the Bank of Latvia, in 2022 net wages in Latvia will grow 9.7% instead of 7.5% predicted in December, in 2023 wages will grow 6.4% instead of 6.1% and in 2024 – by 5.7% instead of 5.9%.
The Bank of Latvia expects in 2022 state budget deficit will be at 5.9% of GDP instead of the previously expected 4.1%, in 2023 – 1.8% of GDP instead of 1.3%, and in 2024 it will be 1.1% instead of the previous 0.4%.
Bank of Latvia downgrades GDP growth outlook to 1.8% for 2022
