Kuldīga Forum: Energy Prices Are Main Risk to Latvia's Growth
A presentation at a business forum in Kuldīga said Latvia's economy is recovering, but rising gas and oil prices increase inflation and interest rate risks. Manufacturing and tourism were named as priorities for the municipality.
At a business forum in Kuldīga, a town in western Latvia, a presentation on global and Latvian economic trends named three key issues: artificial intelligence, global economic developments together with rising national costs, and energy prices. The speaker said Latvia's economy is gradually recovering, but higher energy prices could push up inflation and slow growth.
The global picture
US economic growth is around 2%, driven mainly by investment in artificial intelligence. Even so, the average American rates the economy poorly, because fuel and energy prices have risen and growth is concentrated in a sector people do not feel in daily life. Europe's growth is slow, weighed down by negative demographics and weak productivity. Sentiment dropped in the second quarter, when problems arose in the Strait of Hormuz.
Energy and prices
Europe is entering the new season with very low gas reserves, and a cold winter could push prices higher. Gas already affects the heating tariff. Oil has reached 114 dollars a barrel. The bigger problem is oil products, especially diesel, because refining capacity is limited and several facilities in the Middle East have been knocked out. Refiners now charge 60–70 dollars a barrel, compared with 20–30 before the crisis.
Fertiliser prices are rising again because many farmers held off buying. This may put pressure on food prices. The European Central Bank is expected to raise interest rates at least twice more.
Latvian businesses
Latvia's growth this year will most likely be similar to Lithuania's. The economy is driven by household spending, investment and demand for loans. Goods exports are growing, while services exports are stalling, which airBaltic's scaled-back operations will also contribute to. Company accounts hold more cash than bank debt, yet businesses remain cautious about investing. Also, 91% of companies have a single owner.
Kuldīga municipality
Manufacturing dominates in Kuldīga municipality: of 11 million in profit, just over nine million comes from one company. The speaker suggested developing the other firms and strengthening tourism by hosting more events.
