Updated: 08.07.2019

Latvijas Banka has revised its GDP growth forecast for 2019 downwards from 3.5% to 2.9%, leaving the forecast for 2020 unchanged at 3.1%. The unexpectedly slow growth in the first quarter suggests that domestic consumers have become more cautious and investors' risk appetite has declined: this calls for a downward revision of the GDP forecast. At the same time, the overall outlook for the development of the growth drivers in the near future has remained broadly unchanged, therefore the forecast for 2020 remains the same.

Chart 1
(at constant prices; seasonally and calendar adjusted data; 2019 and 2020: Latvijas Banka forecast; %)

Annual change in GDP

Although the overall economic sentiment indicator has slightly deteriorated in Latvia since the beginning of the year, this has not been caused by any strong driving factor and the sentiment changes registered in a few sectors were observed in the usual fluctuation range.

Latvijas Banka's inflation forecast has remained unchanged, i.e. 2.9% for 2019 and 2.5% for 2020. In the first four months of 2019, inflation stood at 2.9%; compared to December 2018, the impact of the key factors on the inflation forecast remained broadly unchanged.

Chart 2
(2019 and 2020: Latvijas Banka forecast; %)

HICP annual change

In spring, oil prices rose mostly on account of temporary factors; investors are expecting oil prices to fall in the medium term. Along with a slightly slower rise in labour costs, this will result in a gradual decline in inflation over the medium term. Nevertheless, on account of the income convergence process, inflation in Latvia is most likely to exceed the euro area average also in the years to come.