Flash comment: Latvia - May 2, 2018
Annual GDP growth picks up to 4.3% in the first quarter

The economic growth remained strong at the beginning of 2018. According to the first quarter flash estimates, the quarterly GDP growth was 1.7% (seasonally and calendar adjusted data), while the annual growth accelerated to 4.3% compared to 4.2% (not seasonally adjusted data) in the fourth quarter of 2017. The annual growth of the construction sector value added was impressive (+35%). At the same time, the annual growth of the retail and industrial production value added slightly decelerated (to +5% and +3%, respectively), but it still remained very good.

The surge in construction has exceeded the strong rebound seen last year and signals about solid growth of investment activity. The latter is supported by rapid EU funds’ inflow, already high capacity utilization, and construction of various shopping centres/ stores and office buildings. It seems that the rapid growth in the construction has more than compensated for the shrinking of the non-resident banking business. As expected, the effects of the latter have not spilled over to the local economy. The downscaling of the non-resident deposits has likely continued dragging on the financial sector value added and together with falling rail cargo flows have most likely dented the services’ exports. The goods’ exports, though, started the year strongly pulling along the manufacturing output growth (+6% in January and February), which slightly decelerated compared to the previous quarter. The minimum wage hike and payroll tax cuts/ increased allowances boosted the average wage growth, contributing to growing retail sales and, most likely, the total household consumption.

Outlook

The economy is expected to be strong and resilient enough to cope with the shrinking of the non-resident banking business. The Swedbank forecast for the GDP growth this year is 3%. It is quite cautious given the strong start of the year, but we keep it unchanged for the time being – shrinking of the non-resident deposits will continue dragging on the financial sector value added and services’ exports, the import growth is expected to pick up given the robust growth in construction and investment activity, the economies of the main export destinations are expected to slow down, which all together means that the Latvia’s GDP growth rate should slow in the following quarters.


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

________________________________________

This email is sent through the web-based distribution system of Swedbank Macro Research. As a subscriber you can change your settings regarding what publications you will receive by clicking “Change your settings”. You can also unsubscribe by clicking "Unsubscribe".     

Subscribe!
This letter is distributed by Swedbank in cooperation with Brightly. The letter is personal.