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Latvia Economy
 
 
 
 
 

General

Latvia is a member of the World Trade Organisation (1999) and the European Union (2004). Since the year 2000 Latvia has had one of the highest (GDP) growth rates in Europe. However, the chiefly consumption-driven growth in Latvia resulted in the collapse of the Latvian GDP in late 2008 and early 2009, exacerbated by the global economic crisis and shortage of credit. Latvian economy fell 18% in the first three months of 2009, the biggest fall in the European Union. According to Eurostat data, Latvian PPS GDP per capita stood at 56% of the EU average in 2008.

This latest scenario has proven the earlier assumptions that the fast growing economy was heading for implosion of the economic bubble, because it was driven mainly by growth of domestic consumption, financed by a serious increase of private debt, as well as a negative foreign trade balance. The prices of real estate, which were at some points appreciating at approximately 5% a month, were long perceived to be too high for the economy, which mainly produces low-value goods and raw materials. Since 2001, Latvia's chief export has been domestic livestock.

Latvia plans to introduce the Euro as the country's currency but, due to the inflation being above EMU's guidelines, the government's official target is now January 1, 2012. However in October 2007, with inflation above 11%, the head of the National Bank of Latvia suggested that 2013 may be a more realistic date.

Privatisation in Latvia is almost complete. Virtually all of the previously state-owned small and medium companies have been successfully privatised, leaving only a small number of politically sensitive large state companies. Latvian privatisation efforts have led to the development of a dynamic and prosperous private sector, which accounted for nearly 68% of GDP in 2000.

Foreign investment in Latvia is still modest compared with the levels in north-central Europe. A law expanding the scope for selling land, including to foreigners, was passed in 1997. Representing 10.2% of Latvia's total foreign direct investment, American companies invested $127 million in 1999. In the same year, the United States exported $58.2 million of goods and services to Latvia and imported $87.9 million. Eager to join Western economic institutions like the WTO, OECD, and the European Union, Latvia signed a Europe Agreement with the EU in 1995 – with a 4-year transition period. Latvia and the United States have signed treaties on investment, trade, and intellectual property protection and avoidance of double taxation.

With Lithuania, Poland, and Estonia, Latvia is considering participating in the Visaginas nuclear power plant in Lithuania to replace the Ignalina nuclear power plant. Latvia faces a potential energy crisis because in 2009 Lithuania will shut down Ignalina. Without any other policy, Latvia will have to rely more heavily on Russian gas and other sources of electricity.

Overview

Economy - overview :
Latvia's economy experienced GDP growth of more than 10% per year during 2006-07; but entered a severe recession in 2008 as a result of an unsustainable current account deficit and large debt exposure amid the softening world economy. GDP plunged nearly 18% in 2009 - the three former Soviet Baltic republics had the world's worst declines last year. The IMF, EU, and other donors provided assistance to Latvia as part of an agreement to defend the currency's peg to the euro and reduce the fiscal deficit to about 5% of GDP. The majority of companies, banks, and real estate have been privatised, although the state still holds sizeable stakes in a few large enterprises. Latvia officially joined the World Trade Organisation in February 1999. EU membership, a top foreign policy goal, came in May 2004. The budget-deficit remains a major concern.

GDP (purchasing power parity) :
$32.4 billion (2009 est.)

GDP (official exchange rate) :
$24.2 billion (2009 est.)

GDP - real growth rate :
-17.8% (2009 est.)

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