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Artur Eresko ◦ Latvia has lived to see inflation

Artur Eresko ◦ Latvia has lived to see inflation

After several years of price stagnation, which periodically turned into deflation, Latvia has faced a noticeable price growth. Annual inflation rate in this year January has reached its highest level since March 2012, amounting to 2.9%.

 

The greatest impact on price changes was made by rising cost of food products and non-alcoholic beverages related to the transport of goods and services, alcohol and tobacco, communication services, as well as lowering prices of clothing and footwear.
In this year January, as compared to January 2016, food products and non-alcoholic beverages have become more expensive by 6.2%. Fresh vegetables, cheese, cottage cheese, fruit, sugar, butter, milk, sour cream, confectionery, kefir, yoghurt, pork, fish, sweets, chocolate, meat products also have risen in price. True, potatoes have become cheaper.

Tobacco products went up by 5.1% during a year, alcohol by 0.9%. Prices of clothing increased by 4.1% and of footwear by 3.4%. Services and goods related to transport became more expensive by 5.6%, which is associated with a rise in the price of fuel by 14.9%. The level of prices for telecommunications services - fixed and mobile telephony – have increased by 5.8%.

However, prices for air and automobile passenger transportations have decreased, access to the Internet has become cheaper. The prices for thermal energy and natural gas decreased during a year. But if we take into account the trends on world energy markets, then not much time is left to enjoy relatively cheap light and heat for the Latvians.

By all appearances, in February annual inflation in Latvia will still grow. However, it can be followed by a relative calmness and until the end of the year the rise in prices is likely to slow down slightly.

Throughout this year, the inflation will remain close to 3%.

Latvians will have to reconcile with slightly more noticeable growth in prices. For most consumers it will not be too difficult since the growth of wages in the country will speed up. Thus, for several years the population will live according to the principle – small incomes should be afraid of and not big expenses.

Real GDP will grow. Nominal GDP will grow even more noticeably since growth in real GDP growth and growth in prices will be added up. It is important since in this period the real burden of old debts is reduced.

Overheating of the economy, at least in central regions of the country, will become a real risk only after a few years. Even if a plan to curb inflation will appear and a serious discussion will be imitated, actual changes on braking of prices are not expected.

 

Artur Eresko (Артур Ересько), candidate of Economic and Legal Sciences.

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    If for European policy the year 2017 promises to be complicated (elections, Brexit, unpredictable relationship with new government of the USA, trade wars with Russia), while in the economic aspect the new year promises to be quite not bad. At least, for the eurozone countries.

     

    The past year was distinguished by controversial signals concerning the economic growth in the eurozone, however, in general, as a result, positive news prevailed. The eurozone in 2016 demonstrated its soundness under the influence of internal and external shocks.

    Despite strong tension in the market in January and February of the past year, Brexit and continuing weakening of the global market, trust of business and of consumers in the eurozone remained amazingly stable. GDP, according to a tentative forecast, grew in 2016 by substantive 1.6%. So, the past year became the second year of a visible growth of the zone of Euro.

    Today we can presume that the moderate rates of recovery of the economy of the currency block shall preserve also in 2017 – GDP of the region shall grow yet by 1.5 %, at the least.

    The key risk factor for the European economics this year is the policy. Europe this year will again encounter a clear-cut political uncertainty, which might affect determination to invest.

    This is about elections scheduled in Europe to 2017: in the Netherlands, in France, in Germany and, probably, in Italy. After the populist surprises in Great Britain and in the USA a similar result in Germany cannot be ruled out.

    Anyway, in Germany the parliamentary elections ought to take place this year, which will result in the election of the chancellor of the country. France will elect its president, in the Netherlands — parliamentary elections. In Italy the situation is different: resigned at the end of the last year from the post of Prime Minister Matteo Renzi did not exclude in the middle of December that early parliamentary election might take place in June 2017.

    Nevertheless, so far we can forecast the growth of investments in the eurozone this year by 2.5%. This is, however, slightly less than 3%, achieved in 2015 and in 2016.

    While inflation in the eurozone is forecasted at the level of 1.5-1.8 per cent.

    The eurozone has lived for several years under the low inflation condition, even the risk of deflation was emerging, which threatened the process of recovery of economics of the region. This year would considerably weaken or even remove the low inflation risk.

    Here it is important to mention that in December last year inflation in the eurozone already jumped by half a percentage point – to 1.1%, which practically was completely caused by oil price hikes. There are not yet any signals of a new fall in price of a barrel, and there is no reason to be worried of a stop of rise in consumer prices in the eurozone countries.

     

    Artur Eresko (Артур Ересько), candidate of Economic and Legal Sciences.

  • Artur Eresko ◦ Foreign trade: the deficit shrank to the minimum

    The jerk of woodworking industry in September failed to compensate hard landing of export of oil and grain crops. In general, export of Latvian goods in September as compared to the same month of the previous year declined by 2.7%. Over nine months of this year the fall in export of goods made up 1.6% as compared to nine months of 2015.

     

    If to consider in annual terms, then the largest share of contribution to September fall is attributable to re-export. Exactly the fact that the volumes of export of minerals (oil and petroleum products) continued falling (-33.1% in September). This partially can be explained by recent official message on gradual termination of export of Russian petroleum products through Baltic ports. Based on sentiment prevailing in Russian state-owned enterprise Transneft, as well as determination of the Russian party to load, first and foremost, its ports at Saint Petersburg and Leningrad Oblast, most probably, no positive trends in this industry are forthcoming either.

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    In its turn, woodworking keeps on delighting, where the annual growth of export achieved 10.1% (inter alia, the gain in export to Great Britain made up 26%).

    Fears associated with Brexit doubled the energy of Latvian exporters of wood and wood products, who are hurrying to sell as much as possible before exit of Great Britain from the EU. But the date of this monumental for Europe event becomes more and more uncertain. So, the Supreme Court of Great Britain took a decision that the government may not start the Brexit procedure without approval by the Parliament. What would eventually decide the servants of British people is unknown. Anyway, it means postponing of the moment of kiss off, which is positive news for Latvian exporters.

    Moreover, the general growth was facilitated by export of furniture (30.9%) and chemical products (7.6%).

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  • Artur Eresko ◦ Construction projects are waiting for a signal from Brussels

    Latvian statisticians have calculated the number of houses, workshops and roads that have not been built.

     

    Last year, in comparison with 2015, the volumes of construction products in comparable prices for calendar-aligned data decreased by 17.8%. In absolute terms, the fall was 318 million EUR.

    Overall decline does not look so terrible when looking at construction of engineering facilities in 2016 where 33.3% collapse was recorded.

    In 2016, the decline was noted in almost all areas of engineering construction, including ports, waterways, dams and other hydraulic structures - by 31.3%; bridges, overpasses and tunnels - by 29.9%, motorways, streets, roads, runways and railways - by 29.5%.

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    Thus, development of construction industry is hampered by low utilization of EU structural funds. Although for 2016 a decline in cash flow from the EU coffers was predicted, at the beginning of the year it was impossible to foresee that the financial flow would become so low and, as a consequence, would affect so much the volumes of construction. As a result, the current drop in construction is comparable to the fall in output in the 2008-2010 crisis.

    Question of future growth of the construction industry should be put not to Latvian builders but to Brussels bureaucrats who have demonstrated their unpredictability in transferring European subsidies to poor EU countries.

    At present, European financing is expected to be received in the second half of 2017. Then new construction sites will appear in Latvia.

    It can be also predicted when these construction projects will begin to close again. In 2020, European financial assistance will be sharply reduced. It can be said for sure. But it is, unfortunately, impossible to assert that by this time also private and public investments in the construction sector will grow sharply.

     

    Artur Eresko (Артур Ересько), candidate of Economic and Legal Sciences.