Latvian GDP growth was 5.9% in the first half of 2012, slowing from previous quarters. Private household consumption growth increased due to rising employment, wages and consumer confidence. Gross fixed capital formation growth remained strong at 20.5% due to infrastructure and capacity investment, although slowing from the first quarter. Export growth slowed to 3.8% while imports growth was 3.7%, resulting in a trade surplus for two consecutive quarters. Overall GDP growth is forecast to be 4% for 2012, slowing in the second half.

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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