Only after becoming the member of the European Union, Latvia was able to make substantial growth since its separation from the former Soviet Union 18 years ago. But the fastest growing economy of the EU would be registering a slower growth on account of higher inflation. The great Baltic economy’s inflation has risen to 16.7% in February from 15.8% in January 2008. Severe increase in the prices of heating energy, house maintenance, etc. is cited as major reasons for inflationary pressure. Even though the country is going through economic crisis, their premier, Ivars Godmanis stated that the present situation is no match to that of the one he had to overcome during the time of Latvian independence.
The latest projections clearly show that the growth will crimp to 5.8 per cent from last year’s 10.2 per cent. As a stitch in time measure, the president Valdis Zatlers, three months ago has asked Godmanis to take control of the situation since he is considered as the most prominent politician who could gain confidence of the people. Godmanis’ job is to find a quick fix remedy to check the slowdown which is feared to grow as a full-fledged recession, if unattended. Godmanis, the man who steadied the ship during the financial crisis in 1998 said that his primary aim is to sustain momentum in GDP growth.
The economy ministry has admitted that the GDP growth this year is likely to come down, starting with a poor showing in the forthcoming quarter. But the persistent demand from the booming economy of Russia for imports and many EU funded projects are expected to sustain growth despite fears of recession. Another pointer which would avoid recession is that, Latvia and Parex, the second largest Latvian bank, have successfully raised debt in the international markets recently. Worst hit businesses are hoping for market friendly policies to ward off any further turmoil in the economy.