Flash comment: Latvia - September 3, 2018
Annual GDP growth at 5.3% in the second quarter
Revised data show even a bit stronger economic growth in the second quarter than the flash estimate suggested. GDP expanded by 5.3% in annual terms, but seasonally and calendar adjusted growth was at more modest 4.4%. Nominal GDP growth reached a whopping 9.2% (unadjusted).  

As expected, export growth picked up in the second quarter. With growth at 7.5%, export was the largest contributor to GDP growth. This was supported both by a pickup in goods’ export and recovery in services’ export (mostly driven by growth in transport and also ICT sector, 3.8% and 16.2%, respectively). However, transport sector remains vulnerable and most likely an increase in freight volumes will slow. In turn, dry weather and thus smaller crops will slow goods’ export growth in the second half of the year. A bit surprisingly, an annual fall in financial sector was marginal (-0.6%), but it might be due to statistical peculiarities and we will see a larger fall in the third quarter. 

Investment growth decelerated somewhat, but remained strong (12.5%) mostly driven by booming construction (31.6%). We expect construction and thus investment growth to decelerate next year though, as an increase in EU funds inflows will be much smaller and construction sector faces increasing costs, labour shortage and capacity constraints. 

Household consumption growth remained stable, at 4%, which is bit slower that real income growth. Despite robust consumer confidence and rapid purchasing power growth, households are still rather cautious. It seems though that household loan portfolio is starting to get out of minuses – growing interest in taking mortgages will support consumption. We thus expect consumption growth to pick up going forward. 

Swedbank forecasts 4% GDP growth this year as we expect a slowdown already in the second half of the year. We forecast 3% growth next year with business cycle maturing both globally and locally. This year Latvia will be the fastest growing Baltic nation.

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

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