Flash comment: Latvia - August 31, 2017
Economy records a rapid 4% annual growth two quarters in a row

In the second quarter the real GDP increased by 4% (not seasonally adjusted) year on year (YoY), recording the same growth rate as in the first quarter. The pick-up was seen in almost all sectors, except finance and insurance, and operations with real estate. The financial sector continued weakening (-8.6% YoY) on the back of shrinking non-residents business segment. This trend is likely to continue. The real estate activity (-0.2%) was almost flat as household confidence was not high enough to justify a general surge in apartment/house purchases. However, this situation is likely to improve next year.


Export sector remained the main driver of growth also in the second quarter. Growth in manufacturing slightly slowed, but remained solid at 7.1%. The transport sector growth slowdown was more pronounced. The growth decelerated to 3% due to a fall in cargo flows. The rapid wage growth (average net wage increased by 7.8% in the Q2) and rebounding consumer confidence supported household consumption and domestic trade. A pick-up in the EU funds inflows and construction of large supermarkets (IKEA, Akropole) facilitated acceleration in investment activity (+26.1%) and construction (+15.9%).

Outlook

With respect to the GDP volume, the economy still has not reached the pre-crisis peak, but it is likely to happen this in the second half of this year. Currently, there is no reason to talk about general overheating of the economy. The real estate market still has not seen a substantial pick-up in activity and the credit growth has been sluggish. However, the labour market tightening is a reason for concern. This and next year the economy will expand by about 4%. The growth will slow in 2019 as the world business cycle matures.


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

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