Business News
Latvian, Lithuanian economies slow as prices rise
By DPA
May 12, 2008, 10:19 GMT

Riga - Latvia's annual inflation rate reached 17.5 per cent in April, up from 16.8 per cent in March, as the Baltic nation's economy slows down, the Central Statistical Bureau said on Monday.

Rising inflation, coupled with slower growth, is increasingly clouding the economic prospects for the small nation, once known as one of the 'Baltic Tigers' along with Estonia and Lithuania.

Lithuanian inflation in April reached its highest rate since January 1997, hitting 11.7 per cent, up from 11.3 per cent in March, the national statistics office said Monday.

Inflation has been picking up speed in the three Baltic nations, driven by increased costs for food, housing, utilities and fuel.

The economies of Estonia, Latvia and Lithuania are beginning to slow after years of robust growth.

The fastest growing economy among the 27 EU nations in recent years, Latvia posted below-expectation gross domestic product (GDP) growth in the first quarter of 2008. The economy grew by 3.6 per cent, down from 8 per cent a quarter earlier.

Negative processes in the world economy and tightening credit conditions slowed Lithuanian growth to 6.4 per cent in the first quarter of 2008, down from 8 per cent the previous quarter.

Rising prices and tighter lending policies mean consumers are cautious how they spend their money.

Slowing domestic demand, rapid wage growth and a cooling real- estate market are likely to eliminate the 1-per-cent deficit in the Latvian budget and force the government to lower its 2008 economic growth forecast.

Experts expect the inflation in Latvia and Lithuania to rise further mainly due to rises in prices for electricity and gas.

After years of relying on domestic consumption for its economic growth, the Latvian economy will depend on its competitiveness and exports for its growth.

'The Latvian export-orientated manufacturing sectors have performed very badly, even during the past couple of years of high growth in the overall economy,' Danske Bank said in its economic overview.

'The manufacturing sector is likely to face more headwinds as the European economy slows. Furthermore, with domestic demand now slowing dramatically, we are clearly heading for some quarters of negative GDP growth.'

Growth is expected to slow in most 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.