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Latvia Country Risk Report Q1 2016

Latvia Country Risk Report Q1 2016

Core Views

Latvia’s economic recovery will continue in 2016, although we emphasise that labour market improvements are partly the result of high levels of emigration.

We see small but growing scope for the government to ease up on its long-held policy of fiscal austerity going forward.

The Russian embargo on EU agricultural goods has weakened the growth outlook and Latvia will be among the worst EU states affected.

Growth will remain subdued due to the need for further deleveraging.

Major Forecast Changes

We have downgraded our medium-term growth outlook, and forecast average real annual GDP growth of just 3.0% between 2017 and 2020, from a previous forecast of 3.4%.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Political Overview: Rising Defence Spending Incurring Public Opposition
Security and external threats will dominate the bearing of Latvia's political risk outlook for the foreseeable future, while policymaking and
continuity will remain stable.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Slower Growth And Ethnic Tensions Key Themes To 2024
The coming decade for Latvia will be marked by the scars of the global financial crisis of 2008/09.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Household Confidence Growing
The economic outlook remains stable over the short term, although weaker demand from Russia is dragging on the industrial sector.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
External Liabilities To Remain Persistently Large
While we forecast Latvia's current account deficit to remain small, the country needs to run a current account surplus if it is to unwind its
external vulnerabilities. This is particularly true now as household deleveraging is slowing.
TABLE: CURRENT ACCOUNT
Fiscal Policy and
Public Debt Outlook
Public Debt To Decline
Latvia will continue to run small fiscal deficits for the foreseeable future, but the debt/GDP ratio will continue to fall as a result of strong
growth.
Structural Fiscal Position
TABLE: FISCAL POLICY
TABLE: GOVERNMENT REVENUE & SPENDING SOURCES
Chapter 3: 10-Year Forecast
The Latvian Economy To 2024
Looking For A 'New Normal'
After three years of growth outperformance following one of the worst recessions in Europe, we think growth is set to shift down a
gear over the next 10 years, despite the country's accession to the eurozone, as it struggles with competitiveness and demographic
challenges.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
Labour Market Risk
TABLE: DEVELOPED STATES - LABOUR MARKET RISK
Logistics Risk
TABLE: DEVELOPED STATES - LOGISTICS RISK
Crime And Security Risk
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK
Trade And Investment Risk
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK
Chapter 5:BMI Global Macro Outlook
Global Outlook
Exit The Dragon
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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