Boston, MA -- (SBWIRE) -- 11/05/2013 -- Core Views

Latvia's economic recovery will continue into 2013 and beyond, although we emphasize that strong headline real GDP growth is largely a result of statistical base effects. Uncertainty and rising unemployment will also hit household consumption at a time when the government remains firmly committed to fiscal austerity.

We anticipate the moderation in consumer prices in Latvia to remain in place throughout 2013 before picking up slightly in 2014. We forecast inflation to average 1.0% in 2013 and 1.6% in 2014, down from an calculated 2.0% in 2012. Given the weak state of the domestic economy, we believe imported inflation will be a key driver of price pressures this year.

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The Latvian government's commitment to joining the eurozone remains firm, and we view the government's target date of 2014 as increasingly plausible. However, we expect that the Latvian public's negative view towards the currency bloc will pose challenges for the government to convince the electorate. Nonetheless, we believe that the positive economic benefits accession will bestow on Latvia will tip the balance in the government's favour.

Major Forecast Changes

We have revised down our inflation expectations, and now expect consumer prices to grow by an average of 0.7% in 2013 and 1.5% in 2014, from a previous forecast of 1.0% and 1.6% respectively. We have slightly revised down our real GDP forecast for 2014 to 4.1%, from a previous forecast of 4.3%.

Key Risk To Outlook

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