Flash comment: Latvia - January 30, 2018
GDP growth still strong, but slows to 4.2% in the fourth quarter

Real GDP growth slowed to 4.2% year-on-year in the fourth quarter of 2017. Nevertheless, it was the second fastest rate of growth over the past five years. The strong figure, however, was largely due to base effects, as the quarter-on-quarter growth was just 0.3% (seasonally and calendar adjusted). The business cycle has started maturing, and the growth is already past its top speed. The growth will continue gradually slowing, going forward.

As in the first three quarters of 2017, the growth seemed broad also at the end of the year, with almost all sectors growing. Construction benefitted from the incoming EU funds and was the fastest growing sector, with its value added up 21% year-on-year. The industrial sector value added advanced 5%. Robust growth of external demand and improving domestic demand contributed to a 7.5% increase in manufacturing output in October-November. Growing wages and strong consumer confidence helped lift retail sector value added by 5%.

This year, the economic growth will remain strong. However, as the business cycle has started maturing, the growth will be slowing. After growing by about 4.5% in 2017, we forecast the economy to expand 4.2% this year. Internal demand will play an increasingly big role. The tightening labour market coupled with a minimum wage hike and lower payroll taxes will boost consumption, while increasing demand, already high capacity utilization, and EU funds inflow encourage a double-digit growth of investment (gross fixed capital formation). Export will benefit from strong external demand, but it is likely to slow down.

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


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