Latvia's economy is in slightly better shape than Estonia's, according to the Bank of Latvia's (Latvijas Bankas) latest economic forecast, which was published on Friday. Unlike in Estonia, Latvia is preparing legislation to ease the impact of rising interest rates on households with mortgages.
Although the Bank of Latvia's new economic forecast is less promising than its previous one, this year is expected to end with economic growth at 0.66 percent. Inflation will remain at around nine percent and is predicted to fall to 2.3 percent next year. Next year, growth could be at three percent.
"Latvia's economy is likely to be slightly in the black this year, with Estonia's slightly in the red. However, these are annual fluctuations. On the whole, both the Latvian and Estonian economies are affected by the same external developments," said Martinš Kazaks, President of the Bank of Latvia.
"One country may be ahead of the other for a while, but I do not rule out the possibility of Latvia ending up in the same situation as our neighbors," said Uldis Rutkaste, head of the Bank of Latvia's monetary policy department.
The Latvian parliament wants to help mortgage borrowers, who are facing difficulties due to the rise in interest rates. The Bank of Latvia's governors agree, the central bank's president tole ETV show "Aktuaalne kaamera." However, in their view, this support must be short-term and targeted, so that the credit situation does not become even less favorable in the future.
"The choice to adopt a longer-term economic perspective was also in the interest of the banks. They could have voluntarily reduced the percentages, but we saw a very lax attitude here. And now the question on the agenda for politicians is whether this type of support measure could be introduced by law. I think it can be done," Kazaks said.
After all, the owners of the larger commercial banks in Estonia and Latvia are the same. However, there are still quite a few differences between the two countries when it comes to attitudes towards both taxing banks and supporting borrowers.
There are 127,000 borrowers in Latvia, most of whom are aged 30-40. There is no debt to the banks, however, they are living on the edge.
Editor: Michael Cole