Latvia Business Forecast Report Q2 2009

Publication Date	March 2009
Publisher	Business Monitor
Product Type	Report
Pages	60
ISBN Number	1750-2136
Product Code	BMI03513

Buy this product or for assistance call +44 20 7060 7474

PDF £250.00$416 | €280

FAX Order above formats by FAX

Summary

Heading Deeper Into Recession

The Latvian economy posted its worst contraction on record in the last quarter of 2008 according to a flash estimate provided by the statistics office. Having notched up a stellar 10.0% year-onyear (y-o-y) expansion in Q407, the subsequent collapse in the business cycle has seen growth plummet to -10.5% in Q408. Given that growth has already fallen 20.5pp in the space of 12 months, we believe that the scope for further downside is limited. That said, we expect to see negative full-year growth in both 2009 and 2010 of 9.1% and 1.6% respectively. With sources of economic growth few and far between, and with a protracted period of deleveraging and debt consolidation continuing to run its course, we do not expect to see a return to trend growth over the medium term.

Following a sharp decline in popular support and swelling public discontent (exemplified by an outbreak of rioting in Riga on January 13), Latvia's four-party coalition government collapsed on February 20. Having previously stressed the risks of such an outcome only three days earlier (see Growing Risks Of Coalition Dissolution on our online service), President Valdis Zatlers subsequently accepted the resignation of the prime minister and his administration. The three main political outcomes include a widening of the existing coalition, the appointment of a new prime minister to the original coalition, and finally, fresh elections.

Having ballooned to 22.9% of GDP in 2007, Latvia's current account deficit has since undergone a rapid adjustment during the first three quarters of 2008. The collapse in international trade combined with the retrenchment of domestic consumption has seen the deficit narrow to EUR2.5bn during January-September, from EUR3.8bn for the same period a year earlier. What is more, with the external environment set to get worse before it gets better as the global economic downturn continues to gather momentum, and with the deleveraging and debt consolidation process still having much further to run, we expect to see a marked contraction in the current account deficit over the medium term. We estimate the shortfall to have fallen to 15.2% of GDP in 2008 and to narrow further to 2.0% by 2013.

Latvian incumbent telecoms operator Lattelecom has announced plans to roll-out the fastest broadband network in Europe as part of a project named 'Network of the Future'. The first trial customers will be connected to the network by the end of January 2009 and will have broadband access of speeds up to 100Mbps. By the end of 2009, Lattelecom hopes to be offering download speeds of up to 500Mbps and 'perhaps 10Gbps in the more distant future'. The operator has yet to release details of the type of technology that will be used and which equipment manufacturer will supply it. After the initial network roll-out to more than 30 apartment blocks in Riga's Zolitude neighbourhood, the operator intends to expand its fibre-optic network to other Riga neighbourhoods, such as Kengarags, Imanta and Plavnieki, before rolling it out to other major Latvian cities.

Content

Executive Summary
- Heading Deeper Into Recession
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Government Disbands, Crisis Deepens
- Following the escalation of public discontent towards the Latvian government, the four-party coalition collapsed
- on February 20.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Two Years Of Recession Ahead
- Having contracted by a reported 10.5% y-o-y during the final quarter of 2008 and with the deleveraging process
- still having much further to run, we believe that Latvia is set to remain in recession over the course of 2009-2010.
- Exchange Rate Policy
- Lat Devaluation On The Cards
- Despite promulgating its intent to maintain the lat's peg to the euro, we believe that the Latvian government will
- come under considerable pressure to devalue over the medium term.
- Balance Of Payments
- C/A Deficit To Contract Sharply Over The Medium Term
- Having run up one of the largest current account deficits in the world by 2007, the shortfall on Latvia's current
- account has since started to contract.
Chapter 3: 10-Year Forecast
- The Latvian Economy To 2018
- L-Shaped Recovery To Usher In Era Of Below Trend Growth
- As a result of the Latvian economy plunging deep into recession in 2009 and 2010, and with an 'L-shaped'
- recovery now looking more likely than the typical 'V-shaped' recovery pattern, economic growth will be more
- subdued over the long term.
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest - and least discussed - 'wild cards' that could rear its head in 2009 is dramatic political
- upheaval in China.
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will
- combine to spell trouble for the financial services sector in 2009.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Pharmaceuticals
Chapter 7: BMI Global Assumptions
- Global
- Economic Activity
- Monetary Policy
- Commodities
List of Tables
- TABLE: POLITICAL OVERVIEW
- TABLE: ECONOMIC ACTIVITY
- TABLE: EXCHANGE RATE POLICY
- TABLE: BALANCE OF PAYMENTS (EURO)
- TABLE: LONG -TERM MACROECONOMIC FORECASTS
- TABLE: Banks' Leverage Ratios
- TABLE: Assets As % of Home Country GDP
- TABLE: Assets As % of Home Country GDP When Euro zone Is Considered 'Home Country
- TABLE: Exposure As % of Total Exposure To Region
- TABLE: Banks' Foreign Exposure (US$ mn)
- TABLE: Exposure As % of National GDP
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- TABLE: EUROPE, FDI ANNUAL INFLOWS
- TABLE: BMI TRADE RATINGS
- TABLE: TOP EXPORT DESTINATIONS
- TABLE: LATVIA GENERICS MARKET INDICATORS, 2004-2013 (LVL MN UNLESS OTHERWISE STATED)
- TABLE: LATVIA's OTC MARKET INDICATORS, 2004-2013 (LVL MN UNLESS OTHERWISE STATED)
- TABLE: LATVIA's OTHER HEALT HCARE INDICATORS, 2004-2013
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH, % CHG Y-O-Y
- TABLE: DEVELOPED STAT ES, REAL GDP GROWTH FORECASTS
- TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
- TABLE: DEVELOPED MARKET EXCHANGE RATES
- TABLE: EMERGING MARKET EXCHANGE RATES