Flash comment: Latvia - May 31, 2016
Slower growth than last year, but no recession

  • The Latvian economy continues to grow, although slower
  • +0.1% QoQ swda, 2.1% YoY nsa in 1Q 2016
  • 3% growth forecast for 2016, but it can be a bit slower

In line with our expectations revised GDP data were a bit better than shown by the flash estimate. Namely, GDP rose by 0.1% in quarterly terms (swda) and 2.1% in annual terms (the flash estimate showed -0.1% and 1.8%, respectively). Annual swda growth was only 1.5% (because of a leap year), but the adjustment might be a bit exaggerated. Still, growth is indeed slower than last year. 

Annual growth of household consumption accelerated to 3.7% from 2.4% in the previous quarter. It was one of the main growth drivers, supported by steady income growth (see our recent flash comment here). 

In turn, investments were very weak – gross fixed capital formation fell by 16%. Investments into buildings declined particularly strongly (reflected also in a fall of construction volumes), but investments into machinery and equipment diminished as well. On the other hand, there was an extremely strong restocking – an increase in inventories more than outweighed the fall in gross fixed capital formation. Figures seem to be a bit extreme and are likely to be revised later.

Exports volumes fell by 3%, but all main exporting industries – e.g., manufacturing, agriculture, transport, tourism, IT – keep growing. Import volumes rose by 4.6%. Note that foreign trade and investment dynamics is still likely to be revised. 

Outlook

We expect growth to pick up in the second half of the year as external demand strengthens. Our current growth forecast remains at 3% for 2016, although we might revised it downwards a bit.


 

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


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