Flash comment: Latvia - flash GDP Q2 (July 2019)
Annual GDP growth moderates to 2.1% in the second quarter

Economic growth continued into the second quarter, however, the annual growth rate slowed. According to the flash estimate, the quarterly GDP growth rebounded to 0.8% (seasonally and calendar adjusted), while the annual growth slowed to 2.1% (not adjusted). The main reasons for slower annual growth were labour shortage and softer investment and construction growth due to flattening out of the EU funds investments. In addition, some signs signal that weakening external demand starts to affect the Latvian economy.

Economic sentiment index has slightly worsened over the past months; however, it remains above the long-term average. The largest deterioration in optimism was seen in construction. Companies report weakening construction activity and falling new orders. The industrial confidence also weakened compared to the last year. The share of companies saying that their production volumes are limited by labour shortage and by insufficient demand have increased lately. July also saw a decline in export orders. It seems that a slower growth in trade partner economies and growing political uncertainty, e.g. trade wars, Brexit outcome, geopolitical tensions, in the world are starting to affect export performance (export growth slowed in April and May) and economic growth in general.  

Economic growth stands on the shoulders of domestic demand. The strong labour market, resilient household confidence and growing purchasing power boost growth in trade and consumer services. The investment growth, albeit considerably weaker, still supports economic growth. The export performance could slightly improve in the second half of the year given promising crop yield forecasts, however the external risks will most likely weigh. 

Economic growth is still good and broad-based. However, given that it was weaker than expected in the first half of the year, we will most likely revise down our 3.3% growth forecast for this year.

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

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