Strong GDP growth surpasses all expectations
In the third quarter 2017, Latvian real GDP expanded 5.8% YoY nsa (up 1.5% QoQ swda). It is the fastest rate of growth since 2012, and in terms of volume GDP is about back to its pre-crisis level of 2017. Growth is broad across all sectors with confidence equally strong. Practically all key sectors show positive growth (detailed data to be published in late November), labour market is warming up pulling along wage growth and consumers’ ability and willingness to spend. Retail grew 4.9% YoY with non-food items (excluding petrol and gasoline) up pacey 6.7% YoY. Manufacturing has reported 12.1% YoY growth, supported by strong external demand. Construction industry is up hefty 23% YoY (though, from very subdued levels of the past years) even without a significant pick up in bank loan book volumes. Investment activity has rebound.
Overall, general trends are as we had expected, but the growth numbers are stronger than forecasted. The rate of annual real GDP growth of 5.8% is perhaps the cyclical peak, but the flow of very strong numbers is expected to continue in the following quarters. In terms of levels, domestic demand is still quite subdued following overdone cautiousness of the past few years, while export demand is strong in view of a cyclical pickup in global economy. This means that the basis for further growth is broad. We shall revise 2017 GDP growth forecast to about 5% from the current 4.2% with about 4% or above growth continuing into 2018. Yet, as Warren Buffett once said: “Only when the tide goes out do you discover who's been swimming naked.” This is a good time for companies and the government to fix structural issues to ensure that the business cycle upswing lasts longer. Especially, in regards to wage growth exceeding that of improvements in average labour productivity.
For more information please contact Mr. Mārtiņš Kazāks, +371 67445859, firstname.lastname@example.org
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