Latvia’s economic growth in 2017 was significantly more rapid than in previous years. GDP growth in the first three quarters of 2017 was 4.7% higher than in the same period of the previous year. Economy Ministry predicts GDP growth could reach at least 4.5% for 2017.
The ministry notes – compared with the previous four years, average GDP growth rate was 2-3%.
At the same time, the ministry adds that growth was largely possible because of the improvement of external demand, more intensive investments of finances from EU funds and wage growth.
In addition, exports have been growing at a moderate rate these past several years. The same applies to private and state consumption. Export volumes have reached the highest point in recent years. Export benefited from increased external demand. Compared with the first three quarters of 2016, exports in Latvia have grown by 4.1%. Tangible improvements on the labor market front and income rise benefit private consumption. Private consumption grew by 4.9% in the first three quarters of 2017. State consumption grew by 4.5% during this period of time.
After a decline in previous two years, rapid increase was noted in the field of investments in 2017. In the first three quarters of 2017, investments increased by 18.5%. Construction volumes experienced a growth of 18.6% thanks to investments, as noted in the report written by Economy Ministry.
Representatives emphasize that powerful growth was also noted for processing industry, which has benefited from businessmen’s ability to increase their competitiveness and demand on the largest export markets – EU and CIS countries. Compared with the same period of 2016, processing industry grew by 8.5% in the first three quarters of 2017. Growth was also noticed in the largest processing industry sub-sectors. The most rapid increase was noted in production of machinery and electrical and optical equipment. Rapid development was also noted for chemical industry, production of non-metallic minerals and metalworking. Stable growth was noted in food production and logging.
Rapid growth was also registered for transport and storage in the first three quarters of 2017 – 7.5%.
Considering beneficial conditions – economic growth in EU member states and available EU funding – 2018 will be a year of growth. Economy Ministry’s experts say growth may reach 4.2%.
The most rapid growth will remain in processing industry and construction in 2018. Thanks to a beneficial situation in the external environment, stable growth will continue in chemical industry, as well as production of machinery and electrical and optical equipment. Also, thanks to private consumption, retail trade and commercial services will continue growing. With budget investments on a rise, there is also hope for growth in public services.
It should be said that the main economic challenges come from developments on the labor markets – the number of free hands will reduce, which will create pressure on wages and affect producers’ competitiveness on external markets.
Welfare and employment levels have already reached their historically highest levels – residents’ participation level was 69.1% in the first three quarters of 2017, whereas the employment level was 63.3%.
With increased demand for labor force and decline of supply, unemployment continues declining. The number of job seekers declined by 10,400 in three quarters of 2017 when compared with the same period of 2016. Unemployment level declined by 1% and was 8.5%. More rapid decline of unemployment is impeded by the large number of lasting unemployed people (two-fifths of the total number of unemployed people), as well as regional differences and low mobility of labor force in the country, which only increases the risk of structural unemployment, as noted in the ministry’s report.
It is also mentioned that strong demand for capable workers will remain in 2018. The market remains influenced by negative demographic trends, as well as regional differences. Considering that labor force availability will soon become more complicated, it will leave a serious impact on wage dynamics and labor costs. It is expected that average gross wage in Latvia will likely exceed EUR 1,000 in 2018. Unemployment level, on the other hand, may decline to 8% in 2018.
“The only way to ensure growth in a situation when labor force is in decline is increasing productivity of the country’s economy, in other words – ensuring transformation of the economy. This is why it is necessary to continue work on reaching goals detailed in the government’s declaration – stimulation of exports and investments, productivity rise and development of the human capital,” ministry representatives say.
Creation of a sustainable model depends on reforms in education and changes with the labor market in order to prepare and adapt to structural changes. It is necessary to continue initiated reforms in the education system with an emphasis on exact and nature sciences.
One of the primary objectives for Economy Ministry is improving the business environment. Precise reforms and close cooperation with businessmen have allowed businessmen in Latvia to reach considerable results – Latvia was put on 19th place in World Bank’s Doing Business 2018 study. (BNN/Business World Magazine)
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