The Latvian statistics office reported that, according to preliminary data, GDP in Latvia grew 10.7 percent year-on-year in the first quarter of 2007, compared to 13.1 percent in 2006. For the whole 2006 Latvia’s economy expanded by 11.9 percent.
Analysts welcomed the result, since it indicated that the pace of economic growth was beginning to slow down. As Andris Vilks, chief economist at SEB Latvias Unibanka, told the Baltic News Service, “There is no doubt that it was again driven by domestic demand and service industries. I think we will succeed more in curbing economic growth than inflation.”

Dainis Stikuts, chief economist at Hansabanka, Latvia’s largest bank, said the bank expected consumption to fall in the following quarters. He also said that the situation in the real estate sector, which has attracted considerable financial resources, is changing fast.

“The number of transactions with standard-design apartments has decreased considerably in recent months, while at the end of the last year it was evident that the rate of construction development is falling due to insufficient capacities,” he said.
He added that the rapid salary increases suggests that industries are having difficulties boosting production. “Latvia’s economic development cannot be based on further gains in employment, because unemployment is already very low. [It] is possible only by increasing productivity,” said Stikuts.

Vilks pointed out that the economy would be cooled down both by the inflation-curbing plan, as well as stabilization of property prices. “Inflation should stop rising then, because consumers will no longer accept such price levels, and producers will have to sustain their competitiveness on foreign markets,” he said.

The Bank of Latvia’s Gravitis said that the first fruits of the anti-inflation plan could be reaped at the end of the year at the earliest.