Macroeconomic Forecast Latvia

Given the outright destruction of domestic demand alongside the surge in unemployment and reduction in household wealth, we expect imports to remain weighed down over the medium term. Meanwhile, although we believe that exports will also suffer as result of the overvalued exchange rate, we nonetheless expect the tentative improvement in external demand to allow a faster recovery in export receipts relative to imports. As such, this underpins our forecast for the current account to remain in surplus over the medium term, hitting 8.7% of GDP this year before moderating to 6.1% in 2014.

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