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Latvia: Revised estimates confirm GDP growth slowed considerably

Staff Writer | March 2, 2018
According to more complete data released by the Statistical Institute in Latvia, GDP increased 4.2% over the same quarter of the previous year in the fourth quarter.
Latvia   FocusEconomics
The result confirmed the preliminary estimate. Growth came in below Q3’s impressive 5.8% year-on-year expansion, which had represented the fastest rate since Q1 2012.

The slowdown was mainly caused by softer growth in fixed investment and government consumption, which was partially offset by an improvement in the external sector.

Q4’s result brings full-year growth for 2017 to 4.5%, above the 2.2% growth in 2016 and the strongest expansion in six years. In seasonally-adjusted quarter-on-quarter terms, the economy grew 0.3% in Q4, a sharp deceleration from Q3’s 1.5% growth.

Fixed investment expanded 10.7% in Q4 in annual terms. While still an impressive expansion, it was a notable deceleration from Q3’s 19.7% growth.

Fixed investment expanded at double-digit rates in each quarter of 2017, on the back of strong inflows of EU structural and investment funds; in 2016 it had contracted sharply due to the end of the previous European funding cycle.

Meanwhile, private consumption, the largest component of the Latvian economy, rose a strong 5.5% in Q4 (Q3: +5.8% year-on-year) amid declining unemployment and robustly rising wages. Lastly, government consumption grew 3.3% in annual terms in Q4, decelerating considerably from Q3’s 4.9% increase.

On the external front, exports of goods and services increased 4.7% annually in Q4, a considerable acceleration from Q3’s growth of 2.9%. Export growth was spurred by stronger overseas demand from the EU and Russia.

By contrast, growth in imports of goods and services slowed sharply, coming in at 5.8% (Q3: +15.0% yoy), held back by the softer expansion in fixed investment. The external sector detracted from Q4’s annual growth performance by 0.8 percentage points, a notable improvement compared to the minus 7.8 percentage-point contribution in Q3.

The Central Bank forecasts growth of 4.1% in 2018 and 3.2% in 2019. FocusEconomics Consensus Forecast panelists expect the economy to grow 3.7% in 2018, which is unchanged from last month’s projection. For 2019, panelists expect the economy to expand 3.4%.