Latvia Country Risk Report Q4 2018
We forecast a modest growth slowdown over the coming years with real GDP growth coming in at 4.3% in 2018, 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.
Following the passage of the government's tax reforms, the focus will be on its impact on the Latvian economy in 2018 in the run up to next year's general election. The coming campaign will also highlight the divide between the political leanings of ethnic Latvians and ethnic Russians with a chance for deeper integration, but also risks of polarisation.
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.
Learn how to effectively navigate the market research process to help guide your organization on the journey to success.Download eBook