Flash comment: Latvia - May 31, 2018
Economic growth boosted by construction in the first quarter

• Quarterly GDP growth at 1.6% (s.a.), annual growth at 4.2% (n.s.a) in the first quarter

• Economic growth remains strong and broad-based, with only finance and transport sectors in red

• Surge in construction and associated investment increase drives growth

• For the whole year economic growth may exceed 3%, but mind the external risks

The economy started the year off on a strong footing despite the downscaling of the non-resident banking sector. The annual economic growth remained steady at 4.2%, but quarterly growth accelerated (from 0.4% in the Q4 to 1.6% in the Q1). The resilience of economic growth is attributed to the fact that it’s broad-based. A surge in construction (+36% in real terms) more than compensated for the losses in the finance and insurance sector (-27% in real terms).

Non-resident deposits fell by 2.2 billion euros in the first quarter.

Investment activity (+19%) is the main driver of growth. Consumption remains solid, as labour market continues tightening and wage growth is strong. Export growth slightly slowed, mainly on the back of weak services exports led by fall in the financial services exports and weakness in the transport services exports.

Investment growth (+19%) was supported by investment in construction, which among other things benefited from accelerating inflow of EU structural funds and associated investments in infrastructure.

Outlook – the economic growth might exceed the forecasted 3% this year

Given that the non-resident deposits are shrinking more slowly than expected and communicated by the authorities in February and March, it is likely that the economic growth this year will beat our current forecast of 3%. The global growth and the external demand have been quite strong so far. The labour market continues tightening, supporting domestic demand. The confidence is quite strong. But mind the risks, especially external. Geopolitics, protectionism and trade wars, populism – think Italy can slow the regional/ global growth, negatively affecting Latvia’s open economy.

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


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