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2019/03/26 / Erste Group Research

Latvia Macro Outlook: slow-down on the horizon


Growth of Latvian economy peaked in 2018, supported by double-digit investment growth and solid consumption. New anti-money laundering regulations lowered share of non-EU residents’ holdings in local banks.

Growth in Latvia peaked in 4Q18, as the economy expanded at 5.6% y/y (s.a.). Investment growth is visibly above the dynamics observed in other Baltic countries; in 4Q18, gross fixed capital formation increased by 18.6% y/y, supported by the inflow of EU funds and construction of office space. Overall in 2018, Latvia’s economy expanded by 4.8% and became the fifth fastest growing economy in the EU.

Despite almost 10% wage growth in 2018, inflation remained under control. Inflation stood at 2.6% in 2018, driven by energy and services prices. In 2019, further acceleration of energy prices and a recovery of food price growth will most likely shift inflation marginally above last year’s level.

As a result of numerous allegations and investigations of money laundering, the Latvian banking sector underwent extensive reforms over the last couple of years. The most important achievement was to limit the share of non-residents’ holdings in the local banks. In May 2018, the Latvian government introduced a ban on banks serving shell companies in order to reduce the exposure of the local banking sector to non-EU residents.

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General information

AuthorErste Group Research
Date2019/03/26
Languageen
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focus-
Currency in focus-
Sector in focus-
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