Latvia » Outlook

International Property Brokers forecast that GDP growth to slow to an annual average of around 6.5% in 2007, as domestic demand growth moderates. High inflation will delay euro zone entry until 2009, or as is more likely 2010. Export growth, although slowing, will remain strong over the forecast period, as Latvian trade continues to reorient away from the EU15 and towards faster-growing markets, including Russia. With imports expanding more slowly because of weakening domestic demand, and fiscal transfers from the EU rising, we expect the current-account deficit to narrow to 8.5% of GDP in 2007. The governing parties reached a preliminary agreement to reduce the rate of personal income tax in 2007-09, in stages, from 25% at present to 15%. Parliament will probably approve the cuts before the election, but implementation may be held up until disinflation is more firmly on track.