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Flash comment: Latvia - September 8, 2012

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

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Flash comment: Latvia - September 8, 2012

  1. 1. Flash comment: Latvia Economic commentary by Economic Research Department August 7, 2012Latvian 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.lvSwedbank Economic Research Department Flash comment is published as a service to our customers. We believe that we have used reliable sources and methods in the preparation of the analyses reported in this publication.SE-105 34 Stockholm, Sweden However, we cannot guarantee the accuracy or completeness of the report and cannot beek.sekr@swedbank.com held responsible for any error or omission in the underlying material or its use. Readers arewww.swedbank.com encouraged to base any (investment) decisions on other material as well. Neither Swedbank nor its employees may be held responsible for losses or damages, direct orLegally responsible publisher indirect, owing to any errors or omissions in Flash comment.Cecilia Hermansson, +46 8 5859 7720

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