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Latvia Country Risk Report Q1 2019

Latvia Country Risk Report Q1 2019

We forecast a modest growth slowdown over the coming years with real GDP growth coming in at 4 3% and 3 8% in 2018 and 2019, from 4 5% in 2017 This still implies considerable growth outperformance relative to the rest of the eurozone due to ongoing business environment improvements and EU fund inflows

Rapidly rising wage growth, an external economic shock emanating from the eurozone, or a political shock damaging relations with Russia, are the main risks facing the otherwise strong growth outlook

After the October 2018 general election, we expect policy to follow a similar direction Further reform to combat money laundering through the offshore banking sector is likely Social policies are likely to highlight the divide between ethnic Latvians and ethnic Russians with a chance for deeper integration, but also risks of polarisation

Key Risks

The main risk on the economic front stems from the continued rise in the minimum wage rate, which threatens to undermine the country's external competi-tiveness Additionally, an economic shock in the eurozone could undermine exports, which make up a large share of Latvia's GDP Politically, relations with Russia will continue to dominate concerns despite tensions between NATO and Russia having cooled of late and the US's renewed commitment to the security of the Baltic states Latvia Country Risk Q1 2019


Executive Summary
Core Views
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Latvian Economy Approaching Growth Peak
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: EXPORTS
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: IMPORTS
Monetary Policy
ECB Has Few Options But To Gradually Tighten
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
EUR: ECB To Underpin Strength, But Downside Risks Persist
TABLE: FITCH SOLUTIONS EUROZONE CURRENCY FORECAST
10-Year Forecast
The Latvian Economy To 2027
Looking For A 'New Normal'
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Latvia Country Risk Q1 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.ContentsPolitical Outlook
Domestic Politics
Potential Coalition Not A Radical Change For Latvia
Long-Term Political Outlook
Delayed Economic Recovery Accentuates Demographic Issues
Operational Risk
Developed States
TABLE: LABOUR MARKET RISK INDEX
TABLE: LOGISTICS RISK INDEX
TABLE: CRIME AND SECURITY RISK INDEX
Trade And Investment Risk
TABLE: TRADE AND INVESTMENT RISK INDEX
Global Macro Outlook
Inflation And Policy Risks Rising
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: LATVIA – MACROECONOMIC DATA & FORECASTS

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