Finance Ministers from the European Union are likely to caution Latvia to bring down its expenditure and also to trim down the inflation to prevent getting into an “abrupt slowdown”. The information is based on the European Union’s Economic and Finance Affairs Committee’s draft document. The government of Latvia is relying on decelerating consumer demand so that the rate of growth can be brought down to 6.8% by the year 2010. The efforts of the Latvian government came in the wake of warnings issued by the economists as well as by credit rating agencies that said that the economy risks overheating.

The draft document of the EU’s Economic and Finance Affairs Committee was created for a meeting between the finance ministers of the European Union scheduled on the 4th of March. The draft document pointed out that the inflation in the Baltic country of Latvia speedily grew to as much as 15.8% in January this year which was the fastest inflation in the European Union. Further according to this draft document there will be an addition to the quickest inflation, the problem of sluggishness in the lending of banks as well as the declining property prices which endangers household expenditure greater than the government expected, the draft document further cautioned.

The EU draft document adding further says that the Latvian government’s economic situation is also accompanied with greater dangers to its macroeconomic constancy which also includes economic overheating along with a significant danger of an “abrupt slowdown” at a later point. Latvia, the former Soviet Republic experienced an economic growth of a record 13.1 percent in the first quarter of 2006, which generated fears of the economy getting overheated. In the next year that is in 2007 the gross domestic product or the GDP of the country increased by 11.2%, dropping to 9.6% for the fourth quarter. Credit judges as well as banks, which also included Goldman Sachs and also Standard and Poor’s have warned that Latvia runs even a greater risk of a severe slowdown.

The executive body of the of 27-nation union, the European Commission notified the potential risk to Latvia that its economy may have to suffer a “hard landing” on February 13. The European Commission further added that evidence of some slowdown is noticeable in Latvia’s housing market as well as in its domestic consumption however such slowdowns in the economy are not enough to eliminate the negative aspect of a hard landing for the economy. The finance ministry of Latvia declared that it managed to talk into the member states of the EU to take to milder economic jargon in its draft document during the EU finance ministers’ meeting in Brussels on March. 4. As per the request of the Latvian finance ministry, changes have been made in the draft document and the wording “hard landing” has been dropped for a “much softer variant,” spokeswoman for the Latvian Finance Ministry, Daiga Reihmane confirmed.

Tags: European Economy News //