Analysis of economic adjustments as a result of deep crisis: case of Latvia

Abstract

Latvian economy has been the most crisis affected economy so far in the whole territory of the EU. Expected GDP fall during the year 2009 is close to 20%, unemployement rate is approaching 20%, prices have already started to fall. There are major fiscal problems in the economy. For second continious year society live under the threats of devaluation of national currency. Country has applied for serious external financial assistance from IMF and European Commission. The sharp decrease in economic activity is strongly related to the high current account deficit on balance of payments developed during the previous years of high growth thus making Latvian economy extremely vulnerable. As financial inflow has strongly decreased, there is a rapid decline in both private and government consumption and investment. This paper is aimed at analysing and explaining the roots for drastic changes in almost all macroeconomic indicators that have led to serious economic adjustments and strict changes in economic policy. Paper will assess the outcomes of economic adjustments as well as extract the most important lessons that have to be taken from what has happened in the crisis most affected economy of the EU. Both quantitative analysis of indicators and qualitative analysis of economic policy decisions are analysed within this paper.