Latvian Economy Slowing

From Bloomberg this morning:

Latvian Economy Probably Grew at Slowest Pace in Two Years

By Milda Seputyte

Aug. 9 (Bloomberg) -- Latvia's economy probably grew at the slowest pace in more than two years last quarter as consumers spent less and banks tightened lending, a survey of economists shows.

Growth slowed to an annual 10 percent in the quarter from 11.2 percent in the previous three months, according to the median forecast of five economists surveyed by Bloomberg. The statistics office will publish the report at 1 p.m. today.

The European Union's fastest-growing economy is slowing as government measures to curb demand and slow inflation work into the economy. The rate of expansion, more than three times that of the euro region, prompted Standard & Poor's to cut the country's credit rating, citing an increased risk of a ``hard landing.''

``We see domestic demand cooling, which is exactly what we need,'' said Lija Strasuna, an economist with Hansabanka in Riga. ``The domestic demand sectors are slowing very gradually, no rapid drop. Even though the anti-inflation plan hasn't done much on inflation, it surely has affected domestic demand.''

The main drivers of domestic demand, retail sales, credit growth and real-estate transactions, are slowing, Strasuna said. Banks have become ``more conservative'' in lending, she said.

In a bid to slow the highest inflation rate in the EU, which rose to 9.5 percent in July, the government cut fiscal spending, introduced a real-estate tax, and added lending restrictions in March.

Retail sales growth slowed to an annual 24 percent through the three months from April to June from 30.5 percent in January.

Real estate company Latio said average prices for apartments in Soviet-era buildings in Riga have fallen for the last three months by 7.6 percent to an average of $2,172 a square meter.

London-based real estate broker Knight Frank LLC, said in May that apartment prices in Riga grew an annual 61 percent in the first quarter, the quickest rate in the 31 countries and cities it surveyed. Riga also ranked first in price growth according to the 2006 survey, when prices rose an annual 44.8 percent.