Flash comment: Latvia - January 29, 2016
Annual GDP growth at 3% in 4Q 2015

  • GDP annual growth slowed to 3% in 4Q 2015, making 2.8% for 2015 overall
  • 0% quarterly growth seasonally adjusted
  • 3.3% growth forecast for 2016

GDP flash estimate published by the Central Statistical Bureau of Latvia showed that annual economic growth slowed a bit in the fourth quarter of 2015, to 3% from 3.3% in the third quarter. Seasonally adjusted quarterly GDP was flat in the fourth quarter. Although we expected growth to slow a bit in the fourth quarter, the preliminary figures seem a bit underestimated, given the dynamics of leading indicators. Current reading makes it 2.8% growth for 2015 overall. It might inch up closer to 3% with the revised data, but that does not change the story. The growth was a bit swifter than in 2014 (2.4%); however, income convergence with the EU average has slowed. 

The growth was likely broad based. Retail trade turnover grew by about 3% and other services by 5% annually in the fourth quarter, indicating that the household consumption was robust. It was supported by strong wage growth and overall stable consumer prices. Growth of exports most likely slowed, but remained positive, supported, besides other factors, by good grain crops. Industry grew by 3% in annual terms. Investment growth should have continued (spending of EU funds from the previous period should have been done until the end of 2015 and there were some projects delayed to the last minute), although preliminary data suggested a fall in construction sector. Imports remained rather weak, so they should not decelerate growth.

Outlook

We forecast growth to pick up to 3.3% this year. The growth will remain broad based and the contribution from exports and investments will rise, owing to stronger external demand and much less negative effect from Russian recession (since trade links have already diminished notably). Strong wage growth, very small inflation, new lending growth, stable optimism will continue to drive household consumption growth. Negative risks to growth are mostly global, i.e., possibly lower external demand growth. On the other hand, upside risks to short-term growth have increased locally – with the business cycle maturing, a swifter heating up of the labour market, a recovery of credit growth, and improving optimism might cause stronger consumption and boost GDP growth to over 4% in the short term.


 

For more information please contact Ms. Lija Strašuna, +371 67445875, lija.strasuna@swedbank.lv

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