In spite of Latvia’s rapid economic growth, the country’s budget deficit is expected to rise considerably – from 0.8% of GDP this year to 1.8% of GDP next year, said Vice-President of the European Commission Valdis Dombrovskis in Brussels in relation to the spring economic forecast.
He says that in accordance with EC’s spring forecast, rise of investments and growing purchasing power of residents, Latvia’s economic growth was set to become faster, reaching 3.2% this year and 3.5% the next. Nevertheless, budget deficit increase is expected to be considerable.
“Budget deficit increase is associated with the planned tax reform, which, at least so far, has not emphasized any compensating measures to reduce negative fiscal influence. Compared with other Baltic States, it is expected that this year and the next Latvia will experience the most rapid economic growth. At the same time, the country will experience the biggest budget deficit,” Dombrovskis said.
He added that Latvia’s growth last year was slowed by investment drop, which was largely associated with EU multi-year budget and slower use of EU funds. Meanwhile, demand for labor force will continue to increase, improving residents’ overall economic activity and reducing unemployment, said Dombrovskis, adding that demand for labor force and the planned minimum wage increase would definitely set a relatively rapid wage rise, which was expected to be above 6%.
He also says that after a period of low inflation in the past four years, consumer price rise this year and the next will be more rapid in Latvia, ranging from 2.0% to 2.2%, which is linked to growing energy prices in the world and growing domestic demand in Latvia. (BNN/Business World Magazine)
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