Latvia Business Forecast Q1 2007

Content

• Chapter 1: Political Outlook
  • BMI Core Scenario
  • SWOT Analysis
  • BMI Political Risk Ratings
  • Domestic Political Outlook
  • Voters Opt For Status Quo
  • Voters returned the three-party centre-right government to power in early October However, to increase
  • its numerical strength in parliament the coalition has decided to take on a fourth member With a solid
  • majority in the legislature, the prospect of political stability has increased But the policy challenges
  • remain significant
  • Table: Latvian Cabinet & Other Key Posts (As of November 2006)
• Chapter 2: Economic Outlook
  • BMI Core Scenario
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Introduction
  • The Pessimist, The Optimist ... And BMI
  • The government is in disagreement with the central bank and IMF about overheating risks stemming from
  • the current boom A potentially destabilising slowing of economic growth over the medium term remains a
  • possibility, although on balance we expect a deep downturn to be avoided The balance of risks is, however,
  • tilted to the downside
  • Economic Activity
  • Another Year Of Double-Digit Growth
  • Real output growth hit a post-independence high in 2006 However, the longer domestic demand expands
  • at what is clearly an unsustainable rate, the greater the risk that overheating pressures will eventually translate
  • into a hard landing for the economy
  • Table: GDP, Output & Population
  • Table: GDP By Economic Activity (% change in real terms)
  • Fiscal Policy
  • Budget Over-Performs, But Remains Expansionary
  • The new administration has yet to finalise its budgetary strategy or lay out its proposals for tax reform It is
  • unlikely to target a fiscal surplus, as suggested by the central bank and IMF, or even to act decisively to
  • achieve the stated long-term objective of a balanced budget But it is also unlikely to allow the budget deficit to
  • drift much beyond 1% of GDP over the medium term
  • Table: General Government Consolidated Budget* & Debt
  • Monetary Policy
  • Strong Demand And Energy Prices To Keep Inflation High
  • In the absence of any change in government policy, consumer price inflation is expected to remain at
  • comparatively high levels in 2007, as strong demand and rising wages put upward pressure on core inflation,
  • and as regulated prices adjust to higher input costs
  • Table: Consumer & Producer Prices
• Chapter 3: Special Report
  • BMI Sovereign Risk Ratings
  • What And Where Are The Risks?
  • Table: BMI Sovereign RIsk Ratings
  • Emerging Europe
  • Diverging Ratings Trends
  • Table: Emerging Europe Sovereign Ratings - Evolution of Ability to Pay
  • Table: Emerging Europe Sovereign Ratings - Evolution of Willingness to Pay
• Chapter 4: Business Environment
  • BMI Core Scenario
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Legal Issues
  • Labour Force
  • Table: Demographic Indicators
  • Table: Employment Indicators
  • Foreign Investment Policy
  • Table: Latvia Annual FDI Inflows
  • Table: Emerging Europe, Annual FDI Inflows
  • Foreign Trade Regime
  • Table: Top Export Destinations
  • Tax Regime
• Chapter 5: Key Sectors
  • Autos
  • Industry Forecast Scenario
  • Sustained growth in the Latvian car market saw automotive sales grow by 428% to 19,639 units in 2005,
  • according to statistics published by the Latvian Authorised Automotive Dealers Association (LAADA)
  • The trend continued into the first half of 2006 when car sales rose 56% y-o-y to 11,346 units The strong
  • performance in the first half of 2006 has led to an upward revision in our sales growth forecast for 2006,
  • 210% to 167% to 342 BMI expects automotive sales growth to fall to around 5% by 2010
  • Table: Latvia Autos Sector - Historical Data & Forecasts (CBUs unless otherwise stated)
  • Table: Top Five Winners In The Latvian Market: H1 2006
  • Pharmaceuticals
  • Market Summary
  • We expect the Latvian market to grow at an 113% compound annual growth rate (CAGR) through 2010,
  • the fastest rate in the region In value terms, the market should grow from US$343mn in 2005 to
  • US$578mn in 2010
  • Table: DRUG EXPENDITURE