Flash comment: Latvia - August 31, 2015
Annual GDP growth at 2.3% in 1H 2015
  • GDP annual growth at 2.7% and quarterly growth at 1.2% (swda) in 2Q 2015
  • Household consumption was the main growth driver, but export growth was also solid and investment growth resumed
  • We forecast 2.1% growth for 2015

There were no changes to the flash estimate by the Central Statistical Bureau of Latvia (CSBL) – GDP expanded by 2.7% in annual terms in the second quarter of 2015. This is an acceleration compared to 1.9% growth in the first quarter and this is also the swiftest growth in the Baltics. However, not so remarkable in the European context – quite a few countries posted even higher growth, e.g., Czech Republic, Spain, Poland, Romania, and Slovakia.



Investment growth has resumed – after three quarters of decline, gross fixed capital formation grew by 2.8% in annual terms in the second quarter of 2015. It looks like this growth is mostly supported by investments into machinery and equipment, since construction was falling (-3.4%). Investment growth supported larger imports as well (0.7%). Exporters’ performance was also good – although export growth decelerated somewhat, it was still at solid 2%. This was partly supported by resumed production at Liepājas Metalurgs, the largest steel plant that was closed last year, as well as reexports of electronics. Yet, even accounting for that, flexibility of Latvian exporters is remarkable.

Russian recession and political hurdles undoubtedly undermined Latvian export and GDP growth, but could not stop it. There was a fall in, e.g., transport activities (-4.3% in the second quarter) and food production (-7%), but at the same time many other manufacturing industries and tourism continued to grow. Accommodation and catering activities grew by 7.8%, partly supported by the Latvian EU presidency. Number of foreign tourists grew by 5%, despite a nearly 40% fall in the number of tourists from Russia. Manufacturing rose by 6.2%.

Household consumption grew by 2.4% and was the main driver of economic growth in the second quarter, although seems to have grown slower than incomes. Wage growth remains rapid, inflation low, consumer confidence solid. Households can thus afford to spend more, supporting growth of wholesale and retail trade (4.3%) and services, e.g., recreation and culture (5.1%).

Outlook
Economic growth was better than expected in the first half of the year; however, there are still many risks for it going forward (with Russia being the main one). We still expect volatile developments in the second half of the year and forecast 2.1% growth for the year as a whole.

 


For more information please contact Ms. Lija Strašuna, +371 6744 5875, lija.strasuna@swedbank.lv


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