LATVIA'S SHRINKING CONSUMER BASE.

Latvia has made impressive headway in its economic transition following the breakup of the Soviet Union, yet obstacles still remain to long-term growth of private sector consumption.

One obstacle that will hinder sales of non-durable goods is shrinkage of the consumer base. According to data released by the Population Reference Bureau (PRB), Latvias rate of natural population growth stood at -0.5 percent during 2003. As a result, Latvias population is projected to decrease by 24 percent from 2003 through 2050. To a degree, the lower volume in food and beverage sales will be offset by a growing preference for value-added products and imported brands.

In 1999, Latvia became the first Baltic nation to join the World Trade Organization. That helped to open Latvias marketplace to foreign services, and eventual membership in the European Union will further boost foreign trade. The national currency (the lat) gained 15.6 percent in value relative to the U.S. dollar from the second quarter of 2002 through the fourth quarter of 2003. That strengthening will contribute to growth in orders for imported consumer goods in excess of 5 percent through most of this year.

Latvias purchasing power parity per capita of about US$7,800 per annum is typical of a nation with very limited disposable income, but that number is deceptive. Housing and other social benefits lingering from the Soviet era give Latvians a higher level of disposable income than their level of purchasing power indicates. During the third quarter of 2003, net wages were up more than 11 percent year-on-year. That, in turn, will be manifested in growth in overall household expenditure exceeding 5 percent year-on-year through most of 2004. Strongest growth will be noted in sales of electronic goods, household decoration items, and small appliances.