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Eresko Artur · Electric Motor of Latvian Inflation

Eresko Artur · Electric Motor of Latvian Inflation

According to the results of the previous year, inflation in Latvia was 0.2%.

 

Growth and not drop in Latvian prices was first of all, caused by power tariffs that have become more expensive in the course of market liberalization. The liberalized electric energy in 2015 has jumped in price even by 28%. If the situation remained at the level of 2014, i.e. power bills were controlled (and subsidized) by the State, inflation in Latvia would be (-0.7%). It means that the price situation in the previous year would develop similarly to Lithuania (-0.9%) and Estonia (-0.5%).

Fairness requires to note that the summary bills for public utilities in Latvia grew much slower than power prices: by 3.5%. Growth in utility payments was slowed down by oil cheapening, which in case of Latvia was manifested as the reduction in tariffs on gas (-5.2%) and heating (-8.2%).

Collapse of oil prices has directly affected the petrol and diesel fuel sold at Latvian fuel filling station. Within the last year, the prices have reduced here by average 14.4%.

Food products, in turn, have become by 1.3% cheaper, but the price behavior differed sharply among the groups of products. Thus, prices of milk and milk products were by 9.2% lower compared with the previous year (partly affected by overproduction and, accordingly, reduced purchase prices in Europe, partly due to cancellation of quotas in EU and partly in the result of Russia’s embargo). Coffee and tea, in contrast, have grown in price by 7.2%, which could take place under a certain effect of last year’s reduction of EUR/USD exchange rate (by 20% on the average), since these goods were mainly paid in USD.

By the end of the year, the goods on the average have become by 0.7% cheaper than at the year’s beginning while the services have grown in price by 2.6%, which was contributed by a steady increase in wages and salaries.

In the new year, a counter-inflation influence of world raw material prices will gradually weaken while the growth in consumer prices will be still maintained by external factors, such as sharply rising labour compensation (inducing the growth in prices of services) and increasing excise tax on alcohol and oil products. However, oil prices have dropped lower than initially anticipated and will most probably remain at a very low level for a long time.

At present time, inflation is held at its lowest mark. Low prices of raw materials and low level of world economic activity will act as inflation constraints. It should be noted here that inflation in this year will be revived by tax changes.

Anyhow, in the nearest future inflation will not be a threat to further growth in purchasing power. Growth in consumer prices in Latvia will hardly reach the expected 1.5% during this year and more probably will approach 1%.

 

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.

  • Eresko Artur · 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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  • Eresko Artur · 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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    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.

     

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