Latvian economic growth confirmed at 6.2% y/y in Q3

Latvian economic growth confirmed at 6.2% y/y in Q3
By bne IntelliNews December 1, 2017

The Latvian economy grew 6.2% in the third quarter, the Baltic state’s Central Statistical Bureau (CSB) confirmed on November 30.

The reading confirms the result published in a flash estimate in late October, and represents a pick-up in the pace of growth after an already strong rise of 4.8% in the second quarter. The figure is also in line with regional results, and matches expectations that 2017 will see a significant acceleration in the economy. In fact, some forecasts – such the recent one from the OECD – predict the Latvian economy will expand the fastest among the Baltic states in 2017-2019.

“The size of the economy is close to the pre-crisis level, most likely finally surpassing it at the end of this year – 10 years after the start of the recession,” Swedbank noted.

The July-September expansion is the fourth consecutive quarter of accelerating growth. In quarterly terms, GDP expanded an adjusted 1.5%. In unadjusted terms, the economy grew 5.8% y/y in the third quarter.

The gain in activity was driven by a 20% annual gain in investment, while household consumption grew 5.8% on the year. Driven by EU funding, investment is expected to couple with private consumption –which is propped up by rising wages as the labour market keeps tightening – as the key drivers of the economy. Exports also helped, contributing a 2.4% annual rise.

Sector-wise, there was a 25% y/y expansion in construction – a proxy for investment. The sector proved a significant drag during much of 2016 but is currently embarking on a recovery as take-up of EU funding improves. Manufacturing grew 8.4% y/y.

Improving economic sentiment signals continuation of solid growth, going forward, Swedbank claims.

“The role of investment and household consumption will increase. As the base effect fades, the economic growth in the fourth quarter will slow but remain rather steep – about 5%. We expect real GDP growth at 4.7% for this year as a whole and 4.2% [in the] next year,” Swedbank noted.​