Tuesday, May 22, 2007

Latvia Heading For Trouble

These statistics for Latvia look very ominous, to say the least:

"With a current account deficit of 26% of GDP in Q4 2006 (the world’s highest) combined with runaway government spending and booming credit growth (78% in 2006), the Latvian economy looks dangerously close to overheating."

While part of Latvia's growth reflects the catch-up effect versus Western Europe and part reflects the benefits of low flat taxes, these numbers clearly illustrate that part of it reflects an unsustainable boom-bust cycle.


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