Flash comment: Latvia - February 29, 2016
GDP growth at 2.7% in 2015
  • GDP annual growth slowed to 2.7% in 4Q 2015, making 2.7% for 2015 overall
  • GDP down by 0.3% on a quarterly basis (seasonally adjusted)
  • Growth to accelerate this year

Economic growth slowed slightly in the last quarter of 2015. Namely, GDP grew by 2.7% annually (3.5% in the third quarter) and declined by 0.3% on a quarterly basis (seasonally adjusted). In 2015 overall growth stood at 2.7%. With robust purchasing power growth supporting household consumption and somewhat stronger external demand contributing to exports and investments, there is a good potential for growth to accelerate this year.

The main driver of growth both in the fourth quarter and in 2015 overall was household consumption. The growth of household consumption (2.4% in the fourth quarter and 3.3% in 2015 overall), however, was still somewhat cautious, i.e., slower than the income and purchasing power growth. With the labour market continuing to gradually heat up, income growth this year is expected to remain robust. Consumer prices, in turn, are expected to pick up only slightly. Purchasing power growth, thus, is expected to remain strong and will support consumption going forward - we expect it to accelerate to around 4% this year. If the growth of new lending will become swifter, this, together with improving consumer confidence, can boost up the consumption growth even further.

Growing domestic demand, in turn, will continue to support accommodation and catering, arts and entertainment, trade, and other industries largely focusing on domestic demand. Last year, output growth in the aforementioned sectors was swifter than the overall economic growth. The output, in turn, was lower than a year ago in two industries: construction (-1.1% annually) and transportation and storage (-0.1%).

After a surprisingly good third quarter, investment growth has slowed in the last quarter (to 1.1% annually), but exports have slid into minuses (-2.5%). In 2015 overall exports grew by 1%, but investment growth stood at 2.6%. Export and investment activity last year faced obstacles both globally – a significant bite in Russian and CIS markets, and locally – slow administration of EU funds from the new planning period. This year, with the external demand strengthening somewhat and the negative impact from Russia diminishing, the export and investment activity is set to pick up.

 


Outlook
With the growth of household consumption, exports and investments accelerating, we expect GDP growth to pick up to 3.3% this year. Negative risks to growth are yet still sizeable and are mostly global, i.e., how resilient and strong will be the external demand – in Europe and more distant markets. Political risks also remain – especially in Russia, but in Europe as well.



For more information please contact Mr. Andrejs Semjonovs, +371 67445844, andrejs.semjonovs@swedbank.lv
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