Riga - In an old Latvian adage, a king decides between life
and death for his subjects with the placement of a comma. Today, the
Baltic nation's policymakers face some tough choices in trying to
avoid recession.
There has been little good economic news in the Baltics recently -
rising inflation, wide current-account deficits and fears of job
losses.
After several years of record-breaking economic growth boosted by
membership in the European Union, and fuelled by domestic demand and
abundance of credit from mostly Scandinavian banks, the closely
linked economies of Estonia, Latvia and Lithuania are cooling.
Experts expect growth to slow in eastern European countries from
the Baltics to Bulgaria under the impact of tighter credit,
central bank moves to fight surging inflation and the ripple effect
of a weaker global economy.
Now, there's fear that the economic slowdown may force the Baltic
Tigers to hide in the jungle.
Although signs of slowing growth appeared last year, the slowdown
worsened this week when Estonia estimated its economy grew at near
zero in the first quarter of 2008 - far below experts' forecasts.
Economists also expect Latvia and Lithuania to slow down
considerably.
Signs of a slowdown are persistent. One of Latvia's major lenders,
GE Money Bank, recently speeded up procedures for re-selling
impounded vehicles because its parking lot was filling up so quickly.
A number of newly-registered passenger vehicles in Latvia - an
indicator for robust economic growth over the last three years -
dropped 32 per cent in March 2008 from a year earlier, the European
Automobile Manufacturers Association said.
Maris Saukans, a board member of the RBSSKALS, a Latvian
construction company, told media Thursday that it had run out of jobs
for five to 10 per cent of its workers.
Given the lower demand for the construction projects, they should
have laid off 5 to 10 per cent of their employees by now. However, he
added the company has no plans to lay off anyone yet.
Economic outlook forecasts from Danske Bank and GE Money Bank warn
that plummeting consumer spending may even lead to contraction of the
economy this year after three years of double-digit growth which made
Latvia a leader in the EU in that economic indicator.
All of this is not good news for Aleksandrs Truhanovs, a Latvian
construction worker. Dropping real estate prices make it tough for
developers to earn a return on their investments, hire new workers,
and keep the existing ones. And the future looks bleak.
'The mood is very pessimistic,' the 25-year-old Truhanovs told
Deutsche Presse-Agentur dpa this week. 'No one knows what lies ahead
and people are jittery.'
That shattered consumer confidence helps slow economic growth as
well.
'If everyone thinks it'll be bad, trust me, it'll be bad,' Ilmars
Rimsevics, governor of the Bank of Latvia, told reporters Thursday.
But he said Latvia would avoid a steep economic slowdown such as
that in Estonia.
'It would not be right to take to fortune telling at this time. I
hope very much that Latvia's situation would be a bit more balanced
and that we would not experience such a steep fall in GDP growth,'
Rimsevics said.
Latvia's centre-right government is also jittery.
The record-high inflation and slowing economic growth is eating up
chunks of the Baltic nation's budget, translating it into a cut in
government expenses and staff. Prime Minister Ivars Godmanis said
this month he would consider cutting the budget to maintain a 1-per-
cent surplus.
'A clear trend has emerged that the increase in budget revenues
are likely to fall short of the target amid weakening economic
growth. To meet the set targets in this situation, the government
must start cutting spending,' Rimsevics said.
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