Flash comment: Latvia - August 1, 2018
Annual GDP growth picks up to 5.1% in the second quarter

Economic growth picked up to 5.1% in annual terms in the second quarter of 2018. However, note that it was partly contributed by larger number of working days. Calendar adjusted GDP grew at a more moderate pace, 4.2%. Moreover, adjusted data show a slowdown in growth – seasonally and calendar adjusted quarterly growth decelerated to 0.8% from 1.5% in the first quarter, while annual growth to 4.2% from 4.8%. 

The strongest growth was still observed in construction (32%) and will remain so, supported by EU funds’ inflows. Retail trade growth accelerated a bit (to 6%), but only due to working day effect. Household consumption most likely remained strong with rapid wage growth continuing and consumer confidence being stable in the second quarter. Industry growth decelerated a bit (to 2%) despite working day effect and export growth most likely was weaker, but still robust despite protectionism waves globally. 

Nonresident flows in the financial sector will continue to diminish, but the effect on the economy so far has been rather timid. Value added of financial sector will continue to fall, but it is happening slower that previously claimed by the authorities. It will most likely also happen longer and thus influence not only this year’s GDP, but also the next. 

Growth will remain strong also in the coming quarters. Taking into account outbeat performance in the first half of the year, GDP growth in 2018 will most likely be stronger than 3% forecast in April. However, business cycle is starting to mature and growth will gradually slow down both due to local labour and capacity constraints, but also due to slowing growth in Europe.

For more information please contact Ms. Lija Strašuna, +371 67445844, lija.strasuna@swedbank.lv 

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