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Economic growth is projected to remain strong and broad-based. Exports are strengthening as prospects in EU countries and Russia are improving. Stronger exports and EU structural fund transfers are boosting investment. High wage growth will underpin household consumption. Unemployment is projected to fall only gradually due to skill and regional mismatches between workers and jobs. The current account deficit is projected to increase as strong domestic demand boosts imports.
Fiscal policy will remain expansionary. Spending on social assistance transfers and healthcare services will increase. Personal income taxes will be lowered and the taxation of retained corporate profits will be abolished. Increasing the supply of affordable housing would enable low-income workers to move to areas with better job opportunities. Providing more generous grants to students from low-income families attending vocational schools and universities would boost productivity and inclusiveness.
Private sector indebtedness has fallen below the OECD average, and house prices have risen only in line with household income. Foreign deposits at Latvian banks account for 43% of total deposits and have at times been subject to large withdrawals. However, banks holding foreign deposits are subject to stronger capital and liquidity requirements.
Economic Survey of Latvia (survey page)