Flash comment: Latvia - flash GDP Q1 (April19)
Annual GDP growth moderates to 2.8% in the first quarter

After two years of rapid growth, the economic expansion moderated at the beginning of 2019. In the first quarter, the annual GDP growth slowed to 2.8% (not seasonally and calendar adjusted) compared to 4.8% last year as a whole. The quarterly growth turned negative, i.e. -0.3% (seasonally and calendar adjusted).

The main driver of growth likely remained the domestic demand, with household consumption taking over from investment. Consumption was supported by increasing purchasing power and solid consumer confidence. The retail sales volumes grew by 3.7% (calendar adjusted) and the value added in the services sector as a whole expanded by 3%, slightly exceeding GDP growth in the first quarter.

The January-February data on external trade turnover showed that both export and import started the year on a week footing amid moderating global growth and hence easing growth in the trade partner economies. Nevertheless, the export value growth exceeded import growth, suggesting the contribution from the net exports to economic growth was likely positive. Industrial production growth stalled in the first quarter as slightly faster manufacturing growth just compensated for the loss in the electricity generation (due to the dry weather), gas and steam supply. The export orders in manufacturing have levelled off at a high level and are not edging up anymore, while the overall sentiment in manufacturing has started to worsen. Therefore, neither manufacturing nor export performance is likely to significantly improve over the coming months.

The slowdown in the GDP growth in the first quarter was most likely defined by much weaker investment growth, especially in construction. Value added in construction increased only by 6% at the beginning of 2019 compared to 22% overall last year. Part of the slowdown is explained by the levelling off of the European Union structural fund investments that are close to the peak of the current seven-year EU budget programming period.

Outlook

The overall economic sentiment has slightly worsened in the recent months but it still remains above long-term average, pointing towards continuation of economic expansion. Nevertheless, the growth is moderating given the pronounced labour shortages and cost pressures, high capacity utilization level in manufacturing and faltering external demand. The GDP growth this year is expected to be around 3.3%. 


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

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