Latvia: Aiming for euozone accession

The downturn of the European trade cycle leads to lowered growth prospects also for Latvia in 2012. The corporate and the household sector will continue to deleverage quite strongly, thus the growth in investments and household consumption will decline as well. Eager to join the eurozone in 2014, the Latvian government will most probably manage to reduce the budget deficit to below 3% in 2012. The greatest obstacle will however be to lower the consumer inflation rate to the Maastricht criterion. From 2013 onwards we expect external demand to trigger a revival in output growth.