Flash comment: Latvia - October 31, 2016
Latvia’s economic growth extremely weak in Q3

• 0.8% (nsa) yoy 

• 0.5% (swda) qoq 

According to the flash estimate, the year-on-year GDP growth rate was only 0.8% (nsa) in Q3, down from 2.1% seen in the Q1 and Q2. The economic growth was surprisingly weak and well below our forecast. Even though the Q3 number might be revised slightly upwards, the growth rate will definitely fall well below what we have seen in the first half of the year. 

The flash data indicate that the decline seen in the construction sector has deepened, but the industrial and service sectors have continued growing slowly. The retail data do not paint a rosy picture. Even though the sales volume has been growing, the growth rate has slowed down, which most likely has negatively affected the growth rate of consumption. Investment is probably still very weak. The poor growth rate implies that both households and business remain extremely cautious. The GDP growth is being held up by lousy confidence and persistent uncertainty. The external environment is full of challenges, and the confidence indicators do not show any improvement. The task of the government is not only to implement reforms but also to learn how to communicate them in order to avoid unnecessary uncertainty and misunderstandings that dent the confidence and economic activity. 

The tax collection results remain outstanding, especially if you take into account that the forecast was made using much higher GDP forecast. It is one of the two – either the tax collection forecast was too pessimistic or tax collection has significantly improved. The latter seems more likely. 

Outlook 

Given the GDP flash reading, our overall GDP forecast for 2016 (+2.1%) will be revised down.


For more information please contact Ms. Agnese Buceniece, +371 67445875, agnese.buceniece@swedbank.lv 

________________________________________

This email is sent through the web-based distribution system of Swedbank Macro Research. As a subscriber you can change your settings regarding what publications you will receive by clicking “Change your settings”. You can also unsubscribe by clicking "Unsubscribe".  

Subscribe!
This letter is distributed by Swedbank in cooperation with Brightly. The letter is personal.