Flash comment: Latvia - September 8, 2012:Latvian annual GDP growth was 5.9% in 1H 2012

1. Flash comment: Latvia
Economic commentary by Economic Research Department August 7, 2012
Latvian annual GDP growth was 5.9% in 1H 2012
Real GDP growth, %
Revised Latvian GDP data for the second quarter did not bring much
10 5 surprise. Annual growth was 5% (flash estimate had showed 5.1%
Quarterly, sa (rs)
Annual, nsa
before). Seasonally adjusted quarterly growth picked up to 1.3% from
0.9% in previous two quarters (previous estimate had showed about
0 0 1% rise for three last quarters).
In annual terms economic growth is slowing, which holds for all major
counterparts except for household consumption. Employment and
-10 -5
wage growth together with robust confidence and diminishing debt
burden support purchasing power of households and their willingness
to spend. As a result, private spending growth picked up from 5.4% in
-20 -10 the first quarter to 7.2% in the second.
2008 2009 2010 2011 2012
Source: CSBL Annual growth of gross fixed capital formation remained very strong, at
20.5%, although it also decelerated from outstanding 39% in the first
Contribution to GDP growth, pp
quarter. Investment activity is mostly related to improving productive
20 capacity and infrastructure.
10
Export annual growth has also slowed, from 11.5% to 3.8%. The
0 positive news is that has exceeded import growth for the second
-10 consecutive quarter. Slower export and investment growth jeopardized
also imports, which grew by 3.7% in the second quarter (10.7% a
-20
quarter before).
-30
Among industries the strongest annual growth was still in construction
-40 (23.5%), mostly driven by investment activity mentioned above.
2008 2009 2010 2011 2012
Households Government
Construction now makes about 5% of GDP, still below 8-9% during
Gross fixed cap.form. Inventories real estate boom years. Solid growth was observed also in export
Net exports GDP growth
related sectors: IT and communications (10.9%), manufacturing (9%),
Source: CSBL
accommodation and food services (7.7%), transport and storage
Economic sentiment and GDP growth (7.5%) – altogether these sectors comprise a bit more than 30% of
110 10% total GDP. Retail and wholesale trade, which makes almost 18% of
GDP, grew by 6.1%.
5%
100
0% Outlook
-5%
90 Growth is expected to slow in the second half of the year due to the
-10% weakening global economic activity and also negative calendar effects
-15% (smaller number of working days in 1H 2012 compared to 2H 2011).
80
Annual GDP growth is likely to decelerate to just above 2% in the last
-20%
quarter. However, taking into account a very strong first half of the
70 -25% year, we forecast 4% growth in 2012 overall.
2008 2009 2010 2011 2012
ESI, points Annual GDP growth (rs) Lija Strašuna
Source: CSBL, DG ECFIN
Senior Economist
+ 371 6 744 5875
lija.strasuna@swedbank.lv
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