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Private consumption was the determining factor in GDP change in all pandemic waves – it dragged GDP down during periods of tighter restraint and up – when the restraints of caution relaxed and could breathe more breast (read: shop, meet, wrinkle and enjoy the restaurant offer). This quarter has not been an exception either, and consumption has played an important role in GDP growth, but this time competing equally with exports.
Exports has been much more resilient than consumption during the pandemic period, thanks to record grain and timber exports, while services have been declining during periods of constraints.
At a time of such changes in sawn GDP, looking back at the past sometimes seems inappropriate and more forward-looking. However, predictions are not possible without an analysis of past events, so let’s take a little selfishness of vissirslikti.lv – how bad is bad and whether it has been worse.
In the background of alarming news seems to be a struggle with Covid-19 has not taken away the enthusiasm for global tensions, perhaps even the opposite – pandemic fatigue makes us look for external and internal enemies. However, the global uncertainty index does not confirm this, vaccination processes and adaptation to new “rules of the game” have calmed the troubled minds of the world’s population, and the future looks much sunnier than a year ago.
Figure 1. World Uncertainty Index
Source: International Monetary Fund
The Covid-19 pandemic had taken the lead in measuring uncertainty over the past twenty years. However, each country may have a different view in its slippers – neighborhood with their immediate borders and effects on the economy, local political and economic events, natural cataclysms and other factors. It is not for nothing that such uncertainty indices are estimated differently for different countries and regions. Therefore, it is interesting to compare it with Latvian “slippers”. Tensions and sanctions against refugees in our economies as well For Belarus could be more directly affected than the dramatic events in Afghanistan. The various national “Gagan wars” also pose concerns and risks to forecasts.
Figure 2. Latvian economic sentiment index (reverse; long-term average = 100))
Source: European commision, LB calculations
For the average Latvian, of course, the impact of the pandemic has not passed, but the overall economic sentiment indicator has been more optimistic than at the time of the financial crisis in 2008-2010. per year. Probably thanks to government support. We experienced even greater ignorance in the early 1990s. Although the data do not go that far, it can be said with great confidence that the level of uncertainty was even higher then than in 1994, when the economy was already relatively stable. We will not look at the distant past this time – there is no doubt that even more difficult times have been experienced.
But what are the seams and touches of Latvia’s national slippers that still prevent us from seeing a clear picture of forecasts? For example, restrictions on the activities of participants in a builders’ cartel and rising construction costs may hamper investment project intentions. There is also a risk of hasty government spending to please the voter and fight for better positions in the coming years. The Saeima elections. In a situation where potential competitors have already started a relatively aggressive fight, the temptation can be great. Rising prices, Belarusian sanctions, tax changes, weather conditions affecting the construction, agriculture, energy, etc. sectors and many other factors affect our ability to forecast economic development.
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