Flash comment: Latvia - GDP Q3
Annual GDP growth was 2.9% in Q3 2019

The rather solid economic growth of 2.9% in Q3 2019 looks somewhat weaker when the data are corrected for the number of working days, resulting in a less optimistic 1.9% year-on-year figure.

A key contributor, rather surprisingly, given the bleak global environment, was exports. With services exports growing steadily throughout this year, third quarter saw a pick-up in goods export growth after a year-on-year fall the previous quarter. This was mostly thanks to excellent crop yields. Export success was evident also in the commendable performance of the wholesale trade sector. Furthermore, manufacturing saw a decent quarter, despite the problems in its key subsector – wood product manufacturing. However, we expect manufacturing growth to slow in the coming quarters, largely due to the fragile projected economic growth in key partners.

Despite the weak retail trade data, but in line with a strong disposable income growth, private consumption picked up pace in Q3. From the sectoral perspective this was mostly linked to higher growth in such sectors as food services, arts and entertainment and professional services.

The other “leg” of domestic demand – investment – has shown markedly weaker development this year as opposed to 2018, with Q3 being no exception. This is of course due to the increased global uncertainty, but also because of internal factors like the fading boost from the EU structural funds.

Financial services and transportation sector have both seen falling value added in Q3. In both cases the story is a longer-term one. The financial sector is experiencing structural changes, which are likely to be beneficial for the Latvian economy in the medium term. The transportation sector faces a key issue of Russia diverting its cargoes away from Latvian ports. In some years the negative effects are less evident, or even cancelled out by successes in air passenger traffic or growth in cargoes transported by road. However, the traditional role of the transit sector is to continue diminishing going forward.

Overall, the data are mostly in line with our projections as presented in the November Swedbank Economic Outlook. Growth in Latvia is expected to be at 2.3% in 2019, slowing down to 2.0% in 2020. Some pick-up is expected in the second half of 2020, with growth reaching 2.5% in 2021. 

For more information please contact Ms. Līva Zorgenfreija, +371 67445875, liva.zorgenfreija@swedbank.lv

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