After the achieved turning point GDP growth will resume slowly and may be impeded by a number of risks

According to the flash estimate by the Central Statistical Department, in the first quarter of this year, the annual GDP decrease has shrunk to 6%. That is an important improvement compared to the last quarter of the previous year when GDP annual decrease was still at 16.9%. According to seasonally adjusted data, for the first time since the fourth quarter of 2007 a GDP growth against the previous quarter has been observed at 0.3%. This may indicate that a turning point has been achieved in the economic development.

The recovery is to a great extent related to the gradual recovery of world economy and improved competitiveness of Latvian producers as well as - in the last few months - to a slight growth in optimism on the domestic scene evidenced by an improved consumer mood and an increase in retail turnover. It must be taken into account, however, that a return to economic growth will be gradual and in the next few years, as opposed to the pre-crisis period, it will to a great extent be determined by export development to be followed by changes in domestic demand. Such a model of growth is much more sustainable, providing for economic growth that can be kept up in the long term and not be lost during any future crisis.

The economy dynamics is expected to be weak this year and for the year overall the size of GDP will lag behind last year’s indicator. There are several domestic and foreign risks to which GDP growth is subject: developments in Europe related to the finances of Greece and several other countries as well as uncertainty surrounding the much needed consolidation of the 2011 national budget in Latvia, with the government yet to give clear signals as to how this consolidation will be accomplished. In case reform is carried out successfully and advance toward the set goals regarding the budget deficit takes place without a hitch, as early as 2011 we will be able to observe economic growth close to the level sustainable in the long term.