Gājēji Rīgā. Foto: Ieva Čīka, LETA.
... is not a bad way to think of Latvian growth in the years to come. There will be more convergence with the EU28 average, Latvia will overtake structurally flawed countries like Greece but there will also be severe constraints to future growth; constraints that will be hard to ameliorate.
Start with another well-known picture: Latvia's GDP development since 2005. The economy peaked in the first quarter of 2008 then contracted by 22.6% until the second quarter of 2010 - an ultra-deep but relatively short recession. The economy has since regained 16.9% of this loss but remains by the third quarter of 2013 still 9.5% below the peak.
Figure 1: GDP in Latvia, Q1 2008 = 100
Source: Central Statistical Bureau and own calculations
Some commentators like to ridicule Latvia for still being below the peak of 2008 but I find it a rather strange benchmark for success or not. The situation in 2007 was hardly sustainable with a massive credit boom, a current account deficit or more than 20% and a sizzling, red-hot labour market, plus, what is not so often mentioned but is of crucial importance: A level of employment that Latvia can never reach again. I have written about it before but I think it can be repeated since it will act in years to come as a "one step back" example for Latvia's economic growth.
