The recession finally starts to bottom out
Overview:
Latvia has been one of the countries hardest hit by the global financial crisis. It is likely to record its third consecutive year of economic contraction in 2010. However, the economic program supported by the IMF and EU is finally starting to bear fruit. Industrial output and export indicators are encouraging and positive y-o-y GDP growth is likely in H2. The current account has moved abruptly from a large deficit to a surplus. Fiscal targets are being met and foreign exchange reserves rebuilt to healthy levels. It will take some time for domestic demand to recover and unemployment (which has risen sharply) to fall. However, the pain of nominal wage and pension cuts has started to make the real effective exchange rate more competitive again. Parliamentary elections approach in October.