Flash comment: Latvia - August 31, 2016
Latvian economy slows down in 2016 as investment slumps

• Q-o-q swda growth revised up to 0.6% in Q2

• Y-o-y nsa growth at 2.1% in Q2

• Swedbank GDP forecast revised down to 2.1% for 2016

The GDP grew 0.6% in the second quarter compared to the first quarter, which is faster than indicated by the flash estimate. The year-on-year growth in Q2 remained at 2.1% - unchanged compared to the flash estimate. Latvian economy has grown 2.1% y-o-y in the first half of this year, which is slower than in the same period a year ago (2.4%).

Growing wages and lower prices support household consumption, which continues to drive the GDP growth. On the other hand, a slump in investment in the first part of the year, largely caused by the delays in the adoption of the EU funds administrative framework, had a substantial negative effect on growth. Construction sector received the biggest hit from investment weakness, registering a 19% y-o-y drop in value added in the first half of 2016. At the same time the value added growth in manufacturing accelerated to more than 7%, which is partly explained by export volumes’ returning to positive growth in Q2. The export value is falling due to still decreasing export prices.

Even though the actual GDP is smaller than the government had forecast, tax collection is running in line with the target. Thus, the budget remains stable.

The weak start to the year and in particular the investment slump has been the main reason for our forecast downgrade. We now expect that the GDP growth this year will be about 2%.

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


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