Flash comment: Latvia - November 30, 2018
Annual GDP growth at 4.7% in the third quarter in Latvia

Revised data show slightly lower growth than the flash estimate suggested in the third quarter of 2018. GDP grew by 4.7% in annual terms while seasonally and calendar adjusted growth was even stronger at 5.3%. 

As growth in construction eased (10% YoY) ICT was the fastest growing industry (14% YoY) with information services growing particularly strong (at around 14% YoY for three quarters already). But taking into account the size of industries, transport and storage contributed the most to GDP growth, growing by 8% annually. These three industries determined almost half of GDP growth. However, growth in the two biggest industries, trade and manufacturing, slowed considerably. 

Taking into account the rapid growth of transport and ICT, it is a bit surprising to see weak export growth, especially in services, possibly, due to a fall in financial service exports. Value added growth in financial sector was positive though but likely due to some temporary factors. Yet, it is still expected that financial sector will have a negative effect on growth in the end of this year and the next year as non-resident banking sector shrinks. Slowing manufacturing growth and worse crops (due to dry summer) determined goods’ export slowdown. 

Rapidly growing wages and robust household sentiment contributed to household consumption growth, which accelerated compared to previous quarters. Also, strong growth of leisure and cultural service consumption points to an improved household financial situation. Growing interest in housing purchases and a slight uptick in household bank loan portfolio will contribute to household consumption growth next year.  

Gross fixed capital formation continues to grow rapidly thanks to not only construction but also investment in machinery and equipment (including new aircraft purchases). 

Outlook 

We expect that the GDP growth will slow from 4.5% this year to 3% in 2019 due to slower growth globally and in Europe, growing labour shortages and costs to business. Industry-wise, fast transport sector growth will moderate as the rapid growth currently is supported by a few temporary factors such as repairs in Russian Ust-Luga port.

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

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