Latvia Economic Outlook
A second release showed that annual GDP growth picked up slightly to 0.3% in Q4 from Q3’s 0.2%. Accelerations in both private and public spending drove the improvement. Less positively, investment posted a softer expansion, while export growth slowed significantly to its lowest rate since Q1 2021 on weaker European demand. In Q1, the economy is likely contracting at the steepest pace since the onset of Covid-19. In January, the slump in the industrial sector deepened from Q4’s average due to deteriorating manufacturing and mining output, with double-digit producer price inflation likely continuing to stifle activity. In the same month, retail sales growth slowed from the previous quarter, which, coupled with a higher unemployment rate, bodes ill for private spending. Moreover, exports growth continued to slow in January.
Latvia Inflation
Harmonized inflation eased to 20.1% in February from January’s 21.4% on softer price growth for food and transport. Our panel foresees the disinflationary trend continuing, with the headline rate set to nearly halve this year from 2022 on waning demand, weaker commodity prices and higher interest rates. However, inflation will remain well above the ECB’s 2.0% target.