Macroeconomic situation

The economic downturn has been suspended Gross Domestic Product Seasonally adjusted data, 4th q of 2005 = Exports and Domestic Demand Seasonally adjusted data, 4th q of 2005 = 100

Competitiveness are improved 3 Productivity and Labour Costs 4th q of 2006 = 100 Real Effective Exchange Rate Index, December of 2006=100

Distribution of Latvian exports’ growth to the EU using a permanent market share analysis (%) 11% of exports decline was effected by decreasing competitiveness -27.9% +22.3% 40% of exports growth was driven by increasing competitiveness Factors affected changes in exports 4

The role of tradable sectors in the economy are increasing %, against corresponding period of previous year 5

Production volume in manufacturing are increasing 6

7 Situation in Labor market are improved Employment 4th q of 2007 = 100 Unemployment rate % from economically active persons

Forecasts %, against corresponding period of previous year 8 GDP : -18% 0% 3,5% GDP : in % in % in ,5% Seasonally adjusted data, 4th q of 2005 = 100

Economic development trends Substantial inflow of capital Growing domestic demand Rapid growth Growth driver – domestic demand Impact of the global financial crisis and imbalances Growth driver – external demand Emerging risks:  Internal imbalance  External imbalance  Inflow of foreign capital decreases in Latvia Balancing of the current account Domestic demand decreases  External demand decreases GDP decreases Global financial system recovery External demand increases Latvian exports grow Domestic demand increases GDP increases 9

Economic policy priorities aimed to change economic model Increase of productivity and competitiveness:  Increase efficiency of production/decrease production costs  Support for the implementation of new products and technologies/support to innovations  Export promotion (attraction of FDI)  Access to finance  Support to business start-ups and micro- enterprises 10

Developement trends in medium term Gross Domestic Product, 2004 = 100 Rapid development scenario (in average annually GDP growth rate: 4,5% ) Moderate development scenario (in average annually GDP growth rate: 3% ) 11

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