1. Flash comment
Economic commentary by Economic Research Department June 9, 2011
Latvia: GDP growth driven by investments in 1Q 2011
Real GDP growth, % According to revised data, Latvian GDP rose by 0.3% qoq s.a.
(3.5% yoy nsa) in 1Q 2011. This is by 0.1 percentage point higher
15
than flash estimate showed a month ago.
10
Economic growth has decelerated (in 2010 average quarterly
5
growth was 0.9%). However, it should be emphasized that 1Q
0
result was influenced by changes in tax drawback procedures.
-5 Namely, VAT drawback procedure was changed in the beginning of
-10 the year, which caused lower-than-usual VAT revenues in the first
-15 quarter (which has nothing to do with the actual strength of the
-20 economy). This resulted in ca 0.5 percentage point lower GDP
-25 growth than it could have been.
1Q 07 1Q 08 1Q 09 1Q 10 1Q 11 GDP growth was mainly driven by exporting or export related
Quarterly (s.a.) sectors – manufacturing, hotels and restaurants, transport and
Annual (nsa) Source: CSBL
communications, domestic trade (as manufacturers sometimes
export their production through trade companies). Still, despite
export growth continued to be strong (14.7% yoy), import growth
Contribution to GDP growth, pp
was even swifter (20.7%). As a result, net exports were negative.
30 Partly import growth was supported by capital goods, as
20 investments in fixed capital soared (28.4% yoy).
10
Household consumption growth remained weak (just 3.6%) and
0
uneven. Purchasing power of inhabitants does not improve notably
-10
since small wage growth is eaten up by inflation and unemployment
-20
is still high.
-30
-40 Outlook
1Q 07 1Q 08 1Q 09 1Q 10 1Q 11
Net exports Although 1Q outcome is a bit weaker than expected, the forecast
Inventories
Gross fixed capital form. storyline remains the same. We keep our 4% GDP growth
Government
Households forecast for this year. Economic growth might speed up a bit in
GDP growth Source: CSBL the next quarter with investments picking up and exports continuing
to grow. This is “muddling through” scenario – if implementation of
qualitative structural reforms occurs faster, it will increase economic
growth.
Lija Strašuna
Senior Economist
+ 371 6 744 5875
lija.strasuna@swedbank.lv
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