The Latvian Economy - August 4, 2011
Restocking has nearly petered out; future economic growth to depend on fundamentals
- In 2010, economic growth was strongly supported by restocking – businesses needed to rebuild inventories that had been depleted during the crisis. Similar developments were observed in other countries as well. Changes in inventories added nearly 6 percentage points to Latvian growth last year.
- GDP growth slowed in the first quarter of 2011, mostly due to the pickup in imports and the slowdown in inventory buildup. Growth is expected to have picked up again in the second quarter of the year; however, such growth will be more difficult to achieve in the future because the post-recession rebound effect is fading.
- Future economic growth will not be driven as much by inventory rebuilding. The pace of GDP growth will depend on economic fundamentals, i.e., consumption, investments in fixed assets, and exports. Faster implementation of broad reforms in the labour market, education, and the business environment can substantially promote economic development.