Review on Discussion: Economic Outlook for Latvia in the Light of the Crisis in Ukraine

On Wednesday, May 21, the RBS Alumni Association hosted a visit from two of Latvia’s most well known economic analysts who shared their thoughts on the potential impact of the Ukrainian crisis on the economy of Latvia. Martiņš Kazaks (Chief Economist of Swedbank) and Peteris Strautins (Economics Expert at DnB Bank) discussed the direct and indirect influence of these events.

Both speakers agreed that if the conflict does not escalate, it is likely that there will not be a significant negative impact on the EU economy. While there have not been significant economic impacts in Europe, if conditions deteriorate, the consequences could be much higher. In general, the direct impact of these events on the Latvian economy may be seen in a decrease in GDP of about 1%.

Some industry representatives are concerned as to how these events will affect Latvia's exports. Latvia's export to Ukraine are only a very small part of Latvia’s total exports - about only 0,9% - so, by itself, this would not have a large impact on Latvian export statistics. Also as Latvia mainly exports goods to Ukraine, the situation is stable, because the goods export market is easier to substitute. If some specific market or markets close, it is possible to open other ones.

Overall, the Russian economy seems to be fiscally stable though with small or negative growth in the mid-term. The Russian government is delaying borrowing in international markets, as it has sufficient reserves. Russia is also looking to reduce its dependence on the European market. The recent deal with China for the export of natural gas makes sense as part of this strategy.

The other impact of the Ukrainian crisis for Latvia and Eastern Europe is indirect. As Latvia is geographically very close to Ukraine, it affects the confidence of the entire region and may lead to a reduction in direct investment. Also, these events may have a slight impact on trade relations between the Baltic States and Russia with regards to ruble fluctuations.

The speakers suggested that  the main problems of the Latvian economy remain labour market issues and that these issues are not related to facts in Ukraine. The unemployment rate has fallen, but there very poor labor productivity remains a problem.

After the speakers, the discussion continued in an informal atmosphere with refreshments. RBS says a big thank you to all the speakers and participants.