EBRD reduces projected growth rate for Latvia

The European Bank for Reconstruction and Development (EBRD) has revised downwards its growth forecast for Estonia and Latvia, citing sluggish exports and declining trade with Russia and Belarus as contributing factors. Despite the downward revision, the Bank expects economic recovery for the three Baltic countries in 2025.

In its latest Regional Economic Prospects report, published on September 26, the EBRD lowered its forecast for the regions it serves, including the Baltics, from 2.8% to 2.6% for 2024. The Bank's revised forecasts for Estonia and Latvia specifically show a contraction of 0.8% and 0.9% respectively in 2024.

However, the report does not provide details on the reasons for these revisions. The sluggish exports in Estonia and Latvia are attributed to subdued demand in the Nordic region and declining growth in western Europe. Additionally, declining trade with Russia and Belarus, along with energy price fluctuations, is further exacerbating the growth prospects of these countries.

Despite these challenges, the Bank expects the recovery in Estonia, Latvia, and Lithuania in 2025, with GDP growth forecast at 2.5% in Estonia, 2.4% in Latvia, and 2.5% in Lithuania. The Bank attributes this recovery to improved external demand and domestic investment.

The report also highlights the robust private consumption, rising investment, and a recovery in services exports in Lithuania, which is expected to outperform its Baltic peers. The International Monetary Fund (IMF) sent a staff mission to Lithuania to review the current economic data.

The economic performance in the wider region is "uneven," influenced by varying degrees of recovery and fiscal challenges, heavily influenced by weak external demand from advanced Europe and fiscal pressures. The report does not specify the regions covered by the EBRD beyond the Baltic countries.

The EBRD recently had a sizeable team in Latvia to review the latest economic data. The Bank has also revised upward its forecast for Lithuania, expecting a growth of 2.3% in 2024. However, the reasons for this upward revision are not detailed in the report.

Despite the current challenges, the EBRD remains optimistic about the economic prospects of the Baltic countries, predicting a pick-up in growth to 2.8% this year, and a robust recovery in 2025.