Latvia’s bank chief sees growth continuing

The National Bank of Latvia’s chief economist, Oļegs Krasnopjorovs, has said that the country’s economy has performed better than expected and grew by over five per cent in 2018. Dr Krasnopjorovs believes that 2019 will be another year of growth for the Baltic country.

“This is one of the most pronounced growth rates among all European Union member states. Growth in output was reported across all major sectors of the economy. Construction, information technologies and investment recorded two-digit growth rates. Slowly and gradually, we are approaching the standards of living enjoyed in Western Europe. Average income levels already exceed two-thirds of the EU average,” Dr Krasnopjorovs, told the Baltic Times.

However, Dr Krasnopjorovs warned that average wages and unemployment rates do not tell the full story.

“The key word here is ‘average’. Just as the average temperature in a hospital does not define the health status of each patient, the situation in different families varies as well,” he says. “Latgale has an unemployment rate close to 20 per cent and people are engaged in temporary public works for a monthly salary of 150 euros at a time when businesses are increasingly complaining about labour shortages and looking for ways to bring in foreign workers.”

Dr Krasnopjorovs believes that the key to success for Latvia will be to support inclusive growth. “We have to take advantage of the current cyclical expansion so that every household in Latvia would benefit from the economic growth. For example, it seems easier in the short term to offset labour shortages with imported cheap labour from abroad. However, from a longer-term perspective, it is more beneficial to activate the local long-term unemployed persons and to encourage the return of emigrants. It is the second option that would make our society stronger,” he says.

“We continue to waste Latvia’s human capital by pretending not to see that many secondary schools offer education that will hardly help young people be successful in the labour market. The requirements of some of Latvia’s higher education institutions are rather low; anyone can gain a diploma without special effort, and such ‘studies’ do not develop the skills necessary for the labour market. Meanwhile, some smart young people who initially emigrated in pursuit of a good education have decided to stay abroad. Such a waste of human capital reduces Latvia’s growth potential and may weigh on economic growth in the near future,” he explains.