Flash comment: Latvia - November 30, 2015
Annual GDP growth accelerated to 3.3% in 3Q 2015
  •  GDP annual growth accelerated to 3.3% in 3Q 2015 (flash estimate showed 2.5%)
  • Investments and household consumption soared
  • The growth might be slightly above 2.4% forecast in November

The Central Statistical Bureau of Latvia (CSBL) revised substantially GDP data for the third quarter, from 2.5% to 3.3% annual growth. CSBL claims that it is partly explained by cautious forecasts by businesses that were used for the flash estimation, especially in construction and services. Seasonally adjusted quarterly growth was also stronger, 1% instead of 0.4%.

The growth was broad based. The main factor behind growth acceleration was picked up investments and household consumption that had been rather cautious earlier. Although consumer confidence even weakened a bit in the third quarter, strong wage and moderate employment growth, and stable consumer prices boosted consumption. Annual growth of household spending picked up to 5.2% from 2.4% in the previous quarter. Retail trade growth remained largely stable, at about 5%. Gross fixed capital formation grew by 6.4% (2.9% a quarter ago), supported by rising new lending and recovering external demand. Construction performance was better than expected (4.9% annual growth), investments into machinery and equipment also continued to rise. Exports kept increasing, by 1.1% – backed by manufacturing (3.7%), but also agriculture (4.9%, e.g., record high grain crops), hotels and restaurants (8.0%). Transport and logistics sector also returned to growth (1.7%), despite Russian woes. Overall, it seems that the impact of recession in Russia has been rather muted for the whole economy, although certainly more painful for some industries (like transport, dairy and fish manufacturing, etc.)


The growth in 2015 might be slightly faster than 2.4% forecast in November. We had been talking about upside risks for growth via more active investment and consumption since the beginning of the year. It seems finally happening, but it is yet hard to say, whether the pickup is here to stay. So far we forecast 3.3% growth for 2016, which is at about potential pace, ut it can also exceed the potential for a while if, e.g., business and consumer optimism improves a lot, credit stock returns to growth (supported by faster allocation of EU funds), labour market heats up faster. Yet, negative risks to growth also remain sizeable, both from Russian side and globally.

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


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