🔮 Predictions & speculations
Pretty much a weather forecast that should not be taken too seriously - be cautious! Here I will be sharing my economic predictions like there is no tomorrow.
Greetings to a place of speculations 👋
There are many interesting reads, podcasts & views globally, but for me, we are lacking local analysis of our Latvian case. I will try to make sense of it in writing as it also helps me to put everything in perspective. This specific post; however, goes into speculations and forecasts.
So here we go.
Oh and don’t forget.. read responsibly as this is being written only as speculation & I am no expert in all of these fields so there is no need to take me too seriously. However, I am more than interested in discussing any of the topics in more detail & hearing your thoughts - be they the same or different. I am just scratching the surface here & not doing an in-depth analysis.
We could see another recession (a fall in GDP for two successive quarters) even though Latvian last reported GDP figure grew more than 5% in Q1 2022. But why recession?
Europe somehow tends to lag after the US where the GDP declined already during Q1 2022, meaning that a negative Q2 (very likely) will mark the beginning of the recession.
Latvian consumer confidence remains surprisingly high and people tend to say that we are negative? US & German indicators have already reached almost the lowest figures ever.
Inflation decreases consumer purchasing power, see the Matīss example above.
Consumer purchasing power decrease in turn will affect B2C businesses, namely their revenue. With a decrease in their revenue, they will be able to pay less for other services, so the B2B companies will be affected too.
With less revenue, there is obviously no growth so no new jobs, no salary increases, and fewer taxes for the country.
Banks will go bonkers with the lending for the next months as lower demand for consumptions loans could be coming. I would speculate that the largest focus will be on mortgage loans as they are extremely unlikely to default and are the most profitable for many banks.
Swedbank’s (our largest bank) mortgage portfolio is nearly EUR 1.4 billion & they are not free loans. Be safe out there, banks with their loans can be a pain in the ass. I am their client, so no hard feelings.
This can create a credit bubble as well, but it seems a bit far-stretched for now. At the same time, a noteworthy fact is that in 2021 mortgage loan issuance doubled in comparison to pre-pandemic (end of 2019, early 2020) levels.
The good news is that the debt-to-income indicator remains low and that is a very positive sign and gives the assurance that we are not near a credit bubble. Also, personal savings are at the all-time-highs.
As noted previously, we also remain near the higher consumer confidence levels which means that people see a rather bright future ahead (this feels scary to me) that could spur further spending (fewer savings, more travel, more loans, etc.) even with the elevated inflation.
I have no real answer on where to invest & I am frankly also lost in the current environment, but I highly recommend everyone to go through their spending & not overspend in the next months to come. That's a good first step. Investing part will be figured out in the meantime.
Don't be a stranger - share your thoughts.
Yours sincerely,
Roberts L.