Flash comment: Latvia - October 30, 2018
Annual GDP growth at 4.8% in the third quarter

According to the flash estimate, Latvian economy expanded by 4.8% in Q3 compared to the same period in the previous year (seasonally and calendar unadjusted data). Quarterly growth was exceptionally strong at 1.8% (seasonally and calendar adjusted data). 

Value added in construction continued growing at double-digit rates, i.e. 10% over the year. Thus, construction remains one of the fastest growing industries and one of the main growth drivers. However, growth rates have eased from the highs in the first half of the year when the growth surpassed 30% on annual basis. 

Industrial production and retail also saw slowing growth with annual growth of 1% and 2% in Q3, respectively. Decelerating growth in industrial production partly owes to weaker growth in manufacturing. Slower growth in export destination economies like EU, labour shortages and capacity constraints as well as fragile sentiment due to global trade tensions all leave a negative impact on value added growth in manufacturing.  

We expect that growth in financial service value added turned negative once again in Q3. Additionally, financial service industry will likely be a drag on growth in the following quarters as well. However, for now the negative effect has been more than compensated by growth in other industries. 

Fast growth in other industries determined the strong GDP growth figure. One of the industries that might have seen elevated growth in Q3 is transportation and storage. Transport and storage accounts for as much as 10% of the Latvian economy so positive vibes in the industry have a potential to affect the overall growth. The available information shows that Q3 has been quite successful for ports and railways.

In the first three quarters of 2018, Latvian economy has grown at a surprisingly rapid pace, similar to that of last year. Yet, it will be difficult to maintain such fast growth for long. We expect that growth will gradually slow in the coming quarters from the current highs but will still be good. However, the abundance of negative risks such as persistent political and global trade tensions has a potential to worsen business and household sentiment, thus slowing growth even further.

For more information please contact Ms. Linda Vildava, +371 67444213, linda.vildava@swedbank.lv 

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