Page 36 - CE Outlook Regions 2022

2.4.1 GDP growth

The Latvian economy has recovered faster than expected, with its GDP
growth reaching the pre-crisis level already in the second quarter of
2021.

The recovery of the global economy, and the Latvian economy, is
supported by the roll-out of the COVID-19 vaccines and the progress
made with vaccinations. The euro area economy is also recovering
swiftly and approaching pre-pandemic levels.

EU funds should also provide a boost. The European Council approved
Latvia's National Recovery and Resilience Plan (NRRP) in June 2021,
with a total of €1.8bn (6.2% of 2020 GDP) in grants focused on a series
of infrastructure projects, which combined with the normal EU funding
cycle will lift headline growth over the medium term.
Towards the end of 2021 and at the beginning of 2022, economic
growth could temporarily decelerate due to an upsurge in new
infections and slower than hoped progress with vaccinations.

Given that, the economy can be expected to grow at a similar rate this
year and next year, Latvijas Banka, the Latvian central bank, has
revised its GDP growth forecast for 2021 upwards to 5.3%, whereas
that for 2022 has been revised downwards to 5.1% from 6.5%.

Private consumption will be supported by releasing the savings
accumulated during the pandemic in 2022, whereas exports will benefit
from the rising external demand. Estimates concerning government
investment suggest a strong rebound in construction due to a
significant increase in projects commissioned by the public sector,
thereby enhancing the overheating risks of the sector. The main
challenges faced by the sector are the capacity shortages and the
rising costs in the construction industry.

Fitch Ratings predicts growth at 4.3% in 2022-2023. It says
pandemic-related risks will continue to affect the short-term outlook,
with Latvia having vaccinated only around 50% of its total population,
which could force re-introduction of some mobility restrictions in late
2021-early 2022. However, the impact would be temporary, with
domestic demand accelerating from 2022 as pent-up savings are spent
and the investment cycle gathers pace.

36 CE Outlook 2022 www.intellinews.com