Latvia and Greece: Less is More
CEPS High-Level Brief, February 12, 2014
12 Pages Posted: 13 Feb 2014
Date Written: February 12, 2014
Despite considerable differences, there were also many similarities in economic performance between Latvia and Greece before their respective adjustment crises. After the immediate crisis, however, economic activity rebounded sharply in Latvia but continued to contract in Greece. This paper argues that this difference was due primarily to developments in credit. In Latvia credit growth fell sharply, and the economy was deleveraging aggressively by 2009. When the pace of deleveraging started to stabilise, the rebound in the credit impulse caused domestic demand growth to recover. Real GDP has increased about 20% since reaching its trough in the third quarter of 2009.
Keywords: Latvia, Greece, credit growth, economic performance
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