Country Forecast Latvia
The Economist Intelligence Unit, September 2012, Pages: 42
Following the parliamentary election in September 2011, the government is a three-party centre-right coalition without a formal majority. Valdis Dombrovskis remains prime minister. If the euro zone crisis restricts market access, the government may need to negotiate further help from the IMF. The budget deficit will continue to narrow, but it will struggle to shrink to 2% of GDP as the government's commitment to fiscal consolidation falters. Latvia will remain largely insulated from the effects of the euro zone recession, with real GDP expected to grow by 3.1% in 2012. Annual average inflation will ease in 2012 because of lower global commodity prices, before averaging 2.6% in 2013-16. The authorities are likely to succeed in keeping the lat within its narrow band against the euro, but a complete break-up of the euro zone would be destabilising.
The exclusion of Harmony Centre from power, despite the party's dominant control in parliament, could create tensions with Latvia's large Russian-speaking minority. Such issues have the potential to spill over into street protests and increase the likelihood of social unrest.
On June 14th parliament adopted a law to raise the retirement age of 62 by three months each year. The increases will start from 2014, and the retirement age will be raised to 65 by 2025. The increase is essential to help Latvia to deal with its demographic problems, but it is unlikely to lead to significant increases in productivity.
Country Forecast Latvia
Latvia at a glance: 2012-16
OVERVIEW
Key changes from last month
Political outlook
Economic policy outlook
Economic forecast
Latvia--highlights: Political outlook
Latvia--highlights: Demographic outlook
Latvia--highlights: Business environment outlook
Latvia--highlights: Economic outlook
Latvia--highlights: Market opportunities
Latvia--highlights: Long-term outlook
Fact sheet
Political outlook: Political forces at a glance
Political outlook: Political stability
Political outlook: Political and institutional effectiveness
High-level corruption will remain a systemic problem
Political outlook: Election watch
Political outlook: Key players to watch
Andris Berzins
Valdis Dombrovskis
Valdis Zatlers
Political outlook: International relations
Demographic assumptions
Natural decrease of the population will continue
Emigration will further compound demographic decline
The prospect of immigration is a source of sensitivity
Business environment outlook: Business environment rankings
Latvia performs best in tax and policy towards private enterprise
Business environment outlook: Latvia's business environment at a glance
Policy towards private enterprise and competition
Policy towards foreign investment
Foreign trade and exchange controls
Taxes
Financing
The labour market
Infrastructure
Business environment outlook: Macroeconomic environment
Business environment outlook: Policy towards private enterprise and competi
Vested interests will continue to influence the legislative process
Business environment outlook: Policy towards foreign investment
The government is keen to encourage an increase in FDI
Business environment outlook: Foreign trade and exchange controls
Foreign trade regime will remain liberal
Business environment outlook: Taxes
Any tax cuts will be focused on direct taxes
Business environment outlook: Financing
Foreign banks will limit lending to match growth in local deposits
Business environment outlook: The labour market
Labour mobility and firing costs will remain a constraint
Business environment outlook: Infrastructure
Quality of infrastructure will gradually improve
Economic forecast: Policy trends
Economic forecast: Fiscal policy
Economic forecast: Monetary policy
Economic forecast: International assumptions
Economic forecast: Economic growth
Economic forecast: Sectoral trends
Economic forecast: Inflation
Economic forecast: Exchange rates
Economic forecast: External sector
Economic forecast: Foreign direct investment in Latvia
Stocks and flows
Origin and distribution
Determinants
Impact
Potential
Market opportunities: Market outlook
Regional disparities are likely to narrow only gradually
Long-term outlook: The long-term outlook
Long-term outlook: Methodology for long-term forecasts
Growth projections
Definitions of variables
The independent variables include:
Summary of findings
Productivity growth
Data summary: Global outlook
Data summary: Gross domestic product, current market prices
Data summary: Gross domestic product, at constant prices
Data summary: Gross domestic product by sector of origin
Data summary: Growth and productivity
Data summary: Economic structure, income and market size
Data summary: Fiscal indicators
Data summary: Monetary indicators
Data summary: Employment, wages and prices
Data summary: Current account and terms of trade
Data summary: Foreign direct investment
Data summary: External debt
Data sources and definitions
Global data
Domestic data
Abbreviations
Guide to the business rankings model
Outline of the model
Calculating the rankings
Measurement and grading issues
Indicator scores in the business rankings model
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