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High inflation plagues robust growth in Baltic three (News Feature)

By Aleks Tapinsh Sep 10, 2007, 15:00 GMT

Riga - Among the three Baltic States, Latvia leads the way in both the best and the worst in economic indicators. The Baltic nation of 2.3 million people, which joined the EU in 2004, boasts the most rapid economic growth and the highest inflation among the 27 EU nations. Numbers released on Monday show annual inflation in Latvia has beaten its 10-year-old record two months in a row. The higher-than- expected economic indicator reached a staggering 10.1 per cent. At the same time, Latvian GDP has increased by 11 per cent in the second quarter, according to figures the Office of Statistics released last week. The performance is far above the robust 7.6-per-cent growth recorded in Estonia and 8-per-cent increase in Lithuania during the same period. Some experts suggest inflation in Latvia could increase further in September and October, with the annual inflation rate is still estimated at around 9 per cent for this year. 'Latvia's economy shows the greatest degree of overheating among the Baltic states,' an analyst with the international credit agency Fitch Ed Parker told Deutsche Presse-Agentur dpa. In all three countries - but to a greater extent in Latvia - inflation is being fuelled by a large current-account deficit, rapid credit growth and sharp wage increases. To curb inflation, the Latvian government first announced a broad- based plan gently reining in its own spending and encouraging the public to save more and spend less, especially in the overheated property market. The Latvian parliament has been considering a balanced budget for this year with a final vote slated for September 20. The government should adopt a surplus of 1 per cent of GDP this year and plan for a larger surplus next year, Bank of Latvia spokesman Martins Gravitis told Baltic News Service. Wages in Latvia have risen by 33.4 per cent in the second quarter, compared to 21.2 per cent in Estonia and 20.2 per cent in Lithuania. Latvia's northern neighbour, Estonia has been seeing signs of an economic slow-down. Estonia's GDP growth slowed to 7.6 per cent in the second quarter. The Office of Statistics said last week Estonia's annual inflation reached 5.5 per cent in August, with a cooling off on the real estate market. Estonia boasts the highest wages among the three Baltic states. 'The total volume of new loans is falling, the real estate market has stabilized, and preliminary estimates point to the fact the peak of private consumption has also passed,' the Bank of Estonia said in its economic policy statement last month. In Lithuania, annual inflation reached 5.5 per cent in August, the Office of Statistics said Monday. Inflation jumped from 5.1 per cent in July, and accelerated to its fastest pace in nearly 10 years in the Baltic EU country. All three countries must join the eurozone as part of their accession deal with the EU, but staggering inflation is forcing the three governments to delay joining the common European currency. The strict EU criteria for adopting the euro stipulate that countries must have an average annual inflation rate no higher than the average of the three lowest rates in the EU, plus 1.5 per cent. © 2007 dpa - Deutsche Presse-Agentur

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